7 Step Approach to Sustain Business During Supply Chain Disruptions
The coronavirus has severely threatened the business sustainability of many organisations. We look at some steps to reduce the impact of coronavirus in Europe.
Europe has been devastated by the outburst of coronavirus pandemic. With the increasing red dots, Spain is the worst hit with more than 150k cases followed by Italy and Germany1. Normal life is suspended across the continent, and the economy has taken a tremendous hit. Supply chains for all major sectors are crippled, and the whole world is taking a “Whatever it takes” approach. Hope seems to be the only sunshine amidst this dark storm.
Let’s Refresh and Rethink!
The Virus and the Disruption is novel, but the characteristic of the disruption isn’t.
The answer lies in the universality of all pandemics.
We already sustained our supply chain and businesses from events such as the 2002-2003 SARS epidemic, the March 2019 Iceland’s Volcano eruption, Japan’s Earthquake and tsunami in March 2011, and the floods in South East Asia in August 20112. Each event taught us valuable modelling lessons and made us renew our strategies long before COVID -19 originated.
We have to understand that the core problem that Coronavirus poses lies in the rapid acceleration in the disruption rather than the disruption itself.
This rapid rate of change and impact is a novel problem. The COVID -19 outbreak is comparatively more impactful on the supply chain than all these events combined because it hasn’t just disrupted, it stopped production and logistics.
There are 3 Key Reasons for this:
- The overdependence on China and South- East Asia for production: The supply chain has moved towards lowest-cost production centers. Individual cities and countries are now the hubs for cheap labour and specific production. These helped them ensure that the supply is plentiful, and the overall cost of supply is lower too. But, in the cases of disruption like Coronavirus, this created a huge gap in supply.
- The Rigid Supply Chain: Unable to identify alternate suppliers3 and lack of readiness for extraordinary circumstances, procurement went into the shock state with little leverage to act and sustain.
- External Factors: With insufficient health care facilities, closed borders, disintegrated political situation of EU, mounting pressure on the economy, and the widespread panic around the continent with a high aging population, all adding up to the problem with no solution in our hands to implement.
But wait! Aren’t we still working from home while at the same time trying to manage a crumbling business?
So, Let us refresh and rethink our models and procurement strategies rather than restricting our thoughts and cease to make smart decisions.
Do what we do best: Adapt and Respond!
So, sailing the ship to the coast beyond the Corona Storm has 2 phases:
- How to Sustain through the Storm and ensure business sustainability – The Response
- How to Rebuild our Business Strategies After the Storm – The Recovery
Phase 1: The Response
From our previous experiences of unexpected events, companies took careful preventive measures and increased the in-hand inventory levels. The safety stock may vary from 15- 25 days depending upon the forecasting and warehousing models each has implemented.
Meanwhile, China is slowly opening up from the lockdown5, which means some inventory on our shelves. But, because of the tightened transportation and logistics, we would be running close to 10 -12 days of delays in responding to customer demand.
To quickly respond to Coronavirus and hold on to our business, we need to understand the 4 critical factors impacted by Corona:
- Logistics and Transportation.
Now, to sail through, we need to focus on the factors that we can control, i.e., Workforce and Supply.4
To quickly respond, here is the 4 step Tactic approach to pass the Coronavirus Storm:
Step 1: Mapping all your workforce in different geographies and production houses and immediately stop all travel and site visits.
As the virus already extended globally, supply chain leaders should be looking about the health of the workforce and how to manage the day to day procurement activities like requisitioning, Purchase order, and Invoice management amidst the lockdown. A digital Procurement solution comes in handy with a touchless, paperless, and automated requesting, creating, and paying off abilities. This will ensure smooth continuation as well as easy monitoring and maintenance of the procurement structure, in addition to business sustainability in these times. It enables the teams to focus on finding solutions to the upcoming complex supply chain issues each day.
Step 2: Identify and map core suppliers from each tier and based on their sector, commodity produced, and geography.
It will enable us to focus on the right supply group and sustain our supplies for the demand from the current customer base. It will also help in identifying specific supplier risk and help in actively managing them
Step 3: Analyse the different What-If scenarios and forecast future business.
With the dynamic explosion of the virus to all aspects of the business, a quick analysis of all the possible scenarios on all suppliers, products, and business plans based on the present constraints and historical information will reduce the level of uncertainty of demand and supply.
Step- 4: Integrate with all business teams to come up with a short-term strategy.
The whole procurement function needs to collaborate with all the business units, including legal, finance, and IT, to come up with an Integrated business plan which responds, recollects, and adapts.
This will hasten the process of contract reviewing, analyzing data, and tracking costs incurred due to manufacturing shutdown and logistical roadblocks. Due to the integration, there will be an increased focus on resilience, risk exposure, and business continuity plans going forward.
So, with a solid business continuity plan, controlling the supplier uncertainty with risk mitigation techniques, and a team effort at an organisational level, we can stabilize our supply chain, ensure business sustainability and sail through the eye of the Corona Storm.
But not without cracks, holes, and broken parts on our ship, Right?
That’s the reason to plan the next phase: Recovery.
Phase 2: The Recovery
- Though the future seems bleak with the continuous exposure to COVID-19, at a broader level, most economists believe that there will be minimal to medium long-term economic impact on most industries, and overall growth trends will remain fundamentally unchanged.
- In this globally connected world, supply chains are now highly complex and sophisticated. The interlinked nature of these supply chains makes them vulnerable to a wide array of risks, with many potential links to failure.
- Following the decade-old focus on supply chain optimization to minimize costs, low inventories, and maximizing asset utilization has a lowered margin of error for absorbing delays and disruptions.
So, to avoid future breakdowns due to extraordinary situations, we can follow 3 critical strategies:
Building a Flexible Supply Chain
The more stringent the constraints are, the harder the chain. The harder the chain, the easier it breaks.
- To mitigate the impacts of a dwindling supply chain, we need to have a diversified supply chain from a geographic as well as a relationship perspective. A dive into Tier -2 and Tier-3 suppliers reduces the risk from a particular supplier, country, or region.
- The multi-source strategic sourcing strategy will help in reducing our reliance on one supplier. It also gives us leverage over the inventory levels during any disruption and support business sustainability.
- It can be induced with better supplier relationships. A closer relationship with the suppliers will ensure that we have a mutual control and better sense to forecast and respond to supply chain issues.
Increasing Supply Chain Transparency
- COVID-19 illustrates how many companies are vulnerable to global shocks due to a lack of transparency over the supply chain. Clarity over the key suppliers and extended visibility to end-to-end supply chain can dramatically improve supply chain agility and resilience amidst the broken financial spine due to Corona.
- There is a growing transformation from the traditional supply chain model to digital supplier networks where we can connect beyond the boundaries of organisation and geographies. It provides us end to end visibility, resilience, and optimization. They help in anticipating disruptions and notify so that we have the time to Prevent and Prepare.
A Leap towards Digital Procurement: Tapping into the Power of AI
- The complexity and novelty of the disruptions in supply chains are ever-increasing, and managing all the parameters will be difficult. That’s where the leap from Manual to Automated is required.
- Establishing a digital foundation with the AI indulgence in procurement will help us create an anti-fragile supply chain. It will dramatically improve resilience, inventory controls, risk mitigation and ensure business sustainability.
- AI can analyse data from an array of different sources and learn from the previous periods of disruptions. They can list out alternative points in the supply chain to minimise future risk. This way, we would move from reactive supply chain management to proactive supply chain management.
Well, times are tough, and once COVID-19 is under control, and we all see the coast on the other side, we will create a new, flexible and robust supply chain for the future.
We should learn from the disruption and be ready for the next one with the same spirit of adaptability and resilience.
We need to ask the relevant questions on what and when the supply chain models need a rethink?
Till then, stay safe and healthy!