How can you manage coronavirus supply chain risk?

Covid-19 | Covid-19 Advice | Reports

We are in the midsts of some of the most challenging periods in the history of modern business. National lockdowns as a result of COVID-19 have caused shutters to rise in companies and manufacturers across the world. In an increasingly connected global market, these are becoming incredibly challenging hurdles that are impacting even the most secure of supply chains.

All supply chains come with an element of risk management. However, few could have planned for an incident on this scale. Even the most secure businesses, those that had the power to prepare when news emerged at the end of 2019, are having to come up with new solutions. Here, we take a look at what some of the biggest supply chain operators have been doing to minimise their risk, both now and into a changing future.

Diversification is King

There had already been moves in some sectors to create more diverse supply chains, but this latest event has only amplified that desire across industries.

When the virus first emerged in China in 2019, there were concerns about how a potential nationwide lockdown could impact global production. So much of what the world produces either relies on Chinese manufacturing in whole or in parts. As a result of this crisis, companies may well look to other options to create supply chains that can survive any future issue.

These moves away from China are not purely down to COVID-19, however. For much of the last few years, economic uncertainty has been created by the long-running trade war between China and the United States of America.

Uncertainty over future trade barriers has led to a steady diversification in American supply chains, moving away from China to other neighbouring nations and an increase in reshoring. These are moves that we would expect to see mirrored across many global supply chains. To ensure a similar event doesn’t cause as much damage in the future, more diverse supply chains that rely on multiple domestic and international sources will be created, the added expense seen as a trade-off for increased stability.

Data is More Important Than Ever

If companies wish to manage their risk through various suppliers, then data will play an even more crucial role than it already does. While valuable in a financial sense, the current situation has also proven its importance across the broader spectrum of supply chain requirements.

The COVID-19 situation is one that is changing almost daily, even at this stage. Governments across the world are currently relying on real-time data from businesses, mainly regarding the distribution of medical supplies and PPE. This data is coming from multiple sources, including once competing companies that are now collaborating, and needs to be reliable enough to dictate administrative decisions.

There are many new technologies impacting supply chains, but many of them have to do with the production and handling of data. Technologies such as blockchain can improve supply chain reliability, allowing for the creation of more reliable data.

Once this pandemic has finally passed and businesses return to relative normality, suppliers will be able to take lessons from this current situation. One of the major ones is likely to be the power of collaboration with regards to data, and how a better understanding of future demands can help companies prepare for worst-case scenarios.

The Need for Financial Tolerance

While it’s easy to dismiss the current situation as an extreme that is unlikely ever to be repeated, many analysts have suggested such disasters are becoming more common. The only way such a bleak business outlook can be avoided in the future is through adequate risk planning, which is set to become more prevalent in future supply chains.

Many of the fast-growing businesses of the last decade or so have taken a cost-driven approach to their supply chain management, many of them following the ‘just-in-time’ approach common with car manufacturers. Those companies with a lack of protection – be it extra stock, cash flow or emergency capital – are now coming unstuck, despite having seemingly sound models.

Businesses are also increasing their expectations when it comes to suppliers. There is a growing belief that companies will be more aware of a supplier’s financial strength and ability to cope in such situations, to ensure they can continue to function in extreme circumstances.

Ultimately, this predicament is something that could happen again in the future. With this in mind, companies will begin developing robust securities to leave them more prepared for such a situation, should it occur again.

Take Immediate Expense Reduction Measures

Many of these points look to the future of the modern supply chain. However, many businesses are currently concerned about the short term. With a sudden drop in revenue and sheets to balance, many companies are turning to aggressive cost reduction methods.

For many UK companies, this takes the form of furloughs for staff. In that spirit, it’s important to remember that supply chains remain a long-term relationship, and any short-term adjustments should be made with cooperation in mind.

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