Developing a supply chain response to the COVID-19 outbreak is very challenging. Given the scale of the crisis and the speed at which it is evolving.
The best response, naturally, is to prepare yourself before such a tragedy strikes. Since options become more limited when distress is in full swing. Some steps may be taken even when you’re not ready.
And although its long-term effects have yet to play out. Some lessons already provided by the coronavirus outbreak about how you can prepare your organization to take care of future large-scale crises.
What You Can Do Now
Let’s first look at some measures that can be taken to alleviate the influence of the crisis on supply chains.
1. Start with your employees.
The welfare of workers is imminent, and obviously, people are a vital resource. The companies which recovered the quickest in 2005 after Hurricane Katrina were people who tracked down their workers who dispersed across the U.S. Procter & Gamble indeed went so far as to make a local employee village on high ground with foodstuffs, housing, foodstuffs, and money advances for workers and their families.
It may be essential to rethink work practices. When an ice storm closed down Louisville, Kentucky, in 2009, local employees couldn’t get to UPS’s sorting hub. But employees could still travel by air, so the company flew in personnel from other cities to keep the hub running. This interchangeability relied on job and equipment standardization.
2. Maintain Common Sense.
True information is a rare commodity in the early stages of emerging disasters. Particularly if governments are incentivized to maintain the people and business association calm to avoid fear. However, local people may be a reliable and a more valuable source of information, so try to keep local contacts.
3. Run Outage Scenarios To Estimate The Chance Of Unexpected Impacts.
Expect the unexpected. Mainly if core suppliers are in the front line of disruptions. In the case of the crisis, the influence of China is so vast that there’ll necessarily be unexpected consequences. Inventory levels aren’t high enough to overcome short term material outages, so expect to cause prevalent runs on common core elements and materials.
In 2005, Hurricane Rita struck western Louisiana and Houston, causing global close downs of oil refining assets located in the region. What came as a surprise to consumer-packaged-goods companies, some six months later, was that petroleum-based packaging was in limited supply due to Rita’s effect on amounts of the raw materials required to create these materials. Many companies scrambled to redesign packaging utilizing traditional-style cardboard and paper.
4. Build A Comprehensive Emergency Operations Center.
Most organizations now have some semblance of an emergency operations center (EOC). However, in our research, we have observed these EOCs tend to exist at the corporate or business unit level. That is not good enough — a more in-depth, more detailed EOC process and structure are essential. EOCs should exist at the plant level, with planned action strategies for communication and coordination, designated roles for operational agents, protocols for discussions and decision making, and emergency action procedures that involve suppliers and customers.
Managing For Response
The coronavirus story will undoubtedly increase our knowledge about dealing with supply chain disruptions. Even at this almost early stage, we can draw lessons about managing crises of this nature which needs to be applied down the road.
1. Keep A List Of All Your Suppliers.
Map your upstream provider’s several tiers back. Businesses that fail to do this are unable to react or estimate probable impacts when a crisis explodes. After the 2011 Sendai earthquake in Japan, it took weeks for many organizations to understand their vulnerability to the disaster as they were unfamiliar with upstream providers. At that time, any available capacity was gone. Develop relationships beforehand with essential resources — after the disturbance has erupted, it is too late.
2. Take Action To Spread The Risk And Vulnerabilities.
Several supply chains have dependencies that putting companies at risk. A good example is when an industry depends on a supplier that has a single facility with a large share of the international market. The Sendai tragedy highlighted this sort of exposure. By way of instance, Hitachi manufactured approximately 60 percent of the global supply of airflow sensors, a crucial component for automobile manufacturers, of airflow sensors. The anticipated shortage of those items forced many automotive original-equipment manufacturers (OEMs) to allot the left airflow sensors to their greatest margin product lines. The coronavirus outbreak has revealed Apple’s and many auto OEMs’ dependence on sourcing from China.
3. Develop Business Continuity Plans.
These programs should pinpoint contingencies in crucial areas and include backup plans for transport, communications, distribution, and money flow. Involve your customers and suppliers in developing these plans.
4. Don’t Forget Your Employees Functions.
A backup program is required for people too. The plan could include contingencies for more automation, remote-working arrangements, or other elastic human resourcing in response to personnel constraints.
Revisit Your Supply Chain’s Design
Until very lately, most international companies could base their supply chain designs on the premise that materials flow freely worldwide, allowing them to source, produce, and distribute products in the lowest-cost locations around the globe. U.S.-China trade policy whiplash, Brexit, and the coronavirus outbreak have contested the validity of the fundamental assumption.
Mainly, the coronavirus shows the vulnerability of having numerous resources located in a single spot — and a place that is far away from significant markets in North America, Europe, and Latin America. It is believed that a new type of design is required that enables companies to quickly rebuild their supply chains and be ultra-flexible and responsive to change swiftly international trade policies, supply dynamics, and disruptions.
The question is: How should firms design their supply chains to function in a highly volatile world where customers are intolerant of slow responses?
There are various alternatives, and each one involves trading between the amount and the degree of risk that the enterprises can bear and the amount of functional flexibility it wants to achieve.
Here are two examples:
1. Redesign With Multiple Sources.
This supply-chain design offers backup capacity for production, distribution, and supply outages. The backup capacity spreads the possibility of a disturbance across two sources (as long as the disorder does not also affect the second source location). It is much better to have another source outside the primary source region. Though risk levels are lowered by this distribution chain design, it incurs quality monitoring, higher administrative, and unit prices. Also, the economics of scale varies based on the amount of supply allotted to each supply source.
2. Redesign To Use Local Supply Sources.
This design requires a firm to own production facilities with local sources of supplies in all its major markets. Like the above alternative, it increases the risk. As these sources are dispersed, the capital costs are higher. The economies of scale are lower, but the transport charges are more moderate.
These are gross simplifications of several design options that the company can take to decrease risk and ensure response capacity. In-depth analysis and assessment are essential. For choosing a design, firms have to weigh the costs of each and how it will impact their ability to work for their customers and compete against other firms.
Determining which design is suitable is not a one-time process. Companies should always revisit and challenge their design options and the procedures that underpin them.
It is impossible to expect the arrival of global crises like the coronavirus outbreak. However, companies can alleviate their consequences by taking supply chain preparation to a higher level. They should act before disasters occur and adjust and implement new plans afterward instead of starting from scratch every time they are rushed into a new disruption.