Viral disruption

From the April 2020 print edition

Dealing with the COVID-19 pandemic

The coronavirus crisis has evolved so quickly it’s tough to keep up, much less to predict the effects in the weeks and months to come. As of press time, more than 210 countries and territories have reported COVID-19 cases, the disease caused by the coronavirus. Yet supply chain professionals must look to the future as they gauge how to deal with the situation and grapple with the aftermath. This article offers tips for handling this current supply chain landscape.

While this is not the first or last disruption to global supply chains, unpredictable logistics mean a proactive approach is needed to keep business running, says Sri Laxmana, vice-president, global ocean product, C.H. Robinson. It’s important to understand how limitations on imports will affect inventory and shipping cadence, Laxmana says. Talk to your freight-forwarder about production planning and forecasting.
“Look ahead to determine your transportation needs as demand is expected to surpass available capacity in the coming weeks,” Laxmana notes.

As well, consider the variables when planning for production, including:

  • What will production look like and has there been discussion with vendors and factories?
  • How do inventories compare to sales projections?
  • What plans exist to deal with potential worker shortages in China or demands not met?
  • How will backlogs be dealt with?
  • Is there enough air capacity to address decreased passenger flights?
  • Is an expedited ocean or sea-air option being looked at as a backup?

The backlog in China is an example of the importance of a diversified supply chain, Laxmana notes.
“Additional sourcing options are not always easy to find and keeping up with the sheer demand and quality controls can be a challenge,” he says. “Connecting with a global supply chain expert to vet reliable options is important to help ensure success.”

The pandemic has highlighted the need for supply chain transparency, says Patrick Etokudo, general manager at Sherritt International Corporation. Knowing the environment, predicting what’s coming and avoiding or mitigating risk is key, Etokudo notes. But many supply chains remain reactionary and COVID-19 has exposed this. Among Etokudo’s advice is to stay informed; thhis will allow supply chain managers to take protective steps. As well, understand the supply chain and review goods and services to determine the criticality of each.

Determine and review consumption patterns for goods critical to the business’s operations and ensure their supply, Etokudo suggests. Engage key suppliers regularly while determining what their business continuity plans are. He also advises shortening supply chains by sourcing locally or regionally, even as a plan B.

“This is important as the transportation industry is not immune to COVID-19 and a shortage of drivers and operators is a real concern,” he says.

If possible, consolidate shipments and aim for full truckload (FTL). This improves load ratio and therefore cost per unit, as well as minimizing interactions among employees.

While “normal” may look quite different post-pandemic, Etokudo suggests building a business continuity plan, or enhancing an existing one, once the worst is over to secure critical supplies and cover critical supply chain positions or employees.

Identify and analyze risks, he says. Develop a register of risks, assign risk ownership and manage a mitigation program. Identify and take advantage of favourable rates and terms, then negotiate and lock in contracts at those terms and rates, Etokudo says. Keep any cost reductions implemented during the pandemic.

The supply chain interruptions that riskmethods, a risk mitigation and prevention company, are dealing with are substantial, says its chief customer officer and managing director of North America, Bill DeMartino. This affects end-to-end supply chains down to the availability of consumer products, especially those requiring parts originating from the most affected areas like China and Italy.

“We’re seeing a 44-per cent rise in Force Majeure risk and a 38-per cent increase in production shutdowns,” says DeMartino. “The production shutdowns have an obvious impact on supply availability and jobs.”

Risk surrounding Force Majeure may mean suppliers can’t fulfil contracts, he says. Financial risks relating to supplier and manufacturer viability will eventually spike as small- to mid-sized suppliers risk folding.

DeMartino agrees on the importance of visibility. The sooner you see what’s happening, the sooner you can react and mitigate the exposure. While surveying your entire supply chain to assess the disruption and potential threats may sound daunting, DeMartino notes it’s critical as a lack of visibility makes
it tough to prioritize mitigation efforts.

“Longer term, businesses should be consi-dering serious strategy changes, including diversifying their approach to sourcing to not be overly reliant on single suppliers, countries or regions,” he says.

After taking steps to ensure employee safety, organizations should follow government mandates and guidelines surrounding how to deal with the pandemic, says Peter Bolstorff, executive vice-president of the Association for Supply Chain Management (ASCM). Communicate with employees – as well as stakeholders such as vendors – about what the company is doing to mitigate the impact.

Halt discretionary spending and try to have enough cashflow on hand for at least three months, Bolstorff says. Next, look at your cash conversion cycle while considering receivables, days of supply plus inventory and days of supply minus payables days. Check if you have supply chain disruption insurance and use the policy as needed.

After recovery, continue to make risk management a priority, he stresses. Create response plans and let your supply chain team and stakeholders know what those plans are while updating them when necessary.

“Supply chains can prepare for and mitigate future global disruptions with a demand-driven strategy, sensing changing customer demand and adapting planning and production while pulling from suppliers,” Bolstorff says. “A demand-driven strategy is necessary to keep a supply chain robust and resilient by focusing on the flow, not the cost. A robust supply chain can absorb a huge hit and keep moving forward. A resilient supply chain bounces back quickly.”