Supply Chain Risk – Solving and Overcoming Unexpected Gaps
By Eric Johnson
In the current COVID-19 crisis, disruptions to the supply chain have become tremendously apparent, as the entire economy shuts down to contain the spread of the virus and flatten the curve. As we move toward a prolonged shutdown, many organizations are looking to do two things: minimize the damage that the supply chain disruption brings and then to position the organization to ramp up quickly if the recovery occurs at a rapid pace amid sharply recovering demand.
Communicate with your supply chain
First and foremost, supply chain leaders should be on daily calls with their suppliers to understand inventory levels, transportation networks, and other elements that will impact the ability to receive raw materials or services. This constant line of communication not only allows for visibility into current resources, but also can reduce unforced errors by highlighting variables and promoting brainstorming on solutions. It is also important to maintain relationships so that your organization will be able to possibly expedite orders once the economy begins to improve.
Just-in-time philosophies may be challenged
The doctrine for supply chain in recent historical times has been to strive for a lean organization, utilizing concepts from just-in-time inventory management and other low-inventory philosophies. However, in a time of uncertainty, the organization is looking to first manage the change and fill any outstanding orders if possible, and then to plan for the end of the uncertainty and a return to normal times. There are two types of segmented supply chains now – those that have had orders frozen and those that are experiencing an increase (e.g. grocery stores, etc.) Having a durables supply that balances unexpected orders with conservation of cash is prudent to maintain a cautious outlook to the future while still maintaining the ability to serve customers – customers that will remember your organization’s ability to manage through crisis.
Ensure your supply chain leaders, procurement, and finance/accounting are in lock-step
As credit and forecasting are critical to managing the supply chain, finance and accounting should be meeting daily with supply chain and operations to ensure that accounts payables and accounts receivables are maximized, and that credit is available to continue operations. This is especially true if certain products experience demand fluctuations or even reversals from normal times.
Lessons learned for the future
This crisis will end, and when it does, management has a prime opportunity to introduce elements into their organization to reduce the impact of supply chain disruptions for the future. The first is to leverage technology for greater visibility into supplier networks. Organizations must push for as much information as possible in order to create forecasts that can respond to sharp changes quickly – forecast integrations are one way to achieve this. Next, the ability to develop a robust supply network demands a continuous monitoring of the industry to secure a network of suppliers that can assist in difficult times. While not too advantageous when an entire industry is affected, diversification of location can provide alternative suppliers in numerous situations.
The COVID-19 crisis will end at some point and leaders should be looking to the future and planning on how they can both rebound from the current state of emergency and plan for greater stability within the supply chain moving forward. Maximizing opportunities in the supply chain is a journey, not a destination, and requires a continuous improvement philosophy to move the emergency current state back into a focus on sustainability