Coronavirus impact on supply chain: five considerations | by Dr Muddassir Ahmed

The unfortunate outbreak of the coronavirus (Covid-19) has had a wide range of effects around the world. At the time of writing of this article, the reported confirmed cases was 7.5 million and over 420 000 deaths. The global spread can be seen in this map.

In the business world, the virus and the response to the coronavirus have had a massive impact on global supply chains, right from the get-go. The first infections were detected in Wuhan, China which is a critical industrial and transportation hub serving several global markets. And combined action and reaction has led to restrictions and limitations for several business sectors and virtually all markets. And the fear among organisations, as well as containment and preventive actions, are only growing.

The logisitics ramifications include severe disruptions to incoming and outbound air consignments, trucking, rail cargo, and other transportation means, alongside massive port congestion for vessels. And although its long-term effects have yet to be seen, there are already some lessons about how businesses can be better prepared with a view to protecting future sales.

UN’s trade and development agency, UNCTAD, says that the economic uncertainty the virus has sparked will likely cost the global economy $1 trillion in 2020. Industries which are heaviliy depended on supply from China will be particularly impacted. The best response is to have several buffers and contigencies in place and ready to absorb such hits, as options usually turn out to be more limited in future. Nevertheless, developing a practical plan in response to the outbreak can be very tough, especially considering the scale of the problem and the rate it is expanding.

The creation of a clear supply chain response to the outbreak may be challenging, but the best approach is to prepare now and take advantage of any other options available before considering a total lockdown.

Five things business can do

Here are five initial steps business can take in preparing a plan to combat the possible coronavirus impact on their supply chains:

1. Identify critical suppliers in affected areas

Supply chain experts and professionals should begin analysis on every aspect of the business supply chain to identify areas appropriately affected, and how to develop alternate solutions towards solving them. The accuracy of information becomes a singular service during the early periods of any emerging disasters. Reports on its impact tend to be slightly rose-tinted. Nevertheless, stick to a more dependable source on data and information relating to the effects.

In the Hubei Province, most distributors, suppliers, or warehouses are all facing lockdown. The Hubei Province is one of the most affected regions and covers key locations like Jiangsu, Guangdong, Shanghai, Zhejiang, and more. Do you have supply coming from this area? If yes, how are you preparing for interruptions?

2. Secure alternate sources and increase inventory

Generally I advise against this tactic, but in this case it may be necessary to secure alternate sources and increase yout inventory as a buffer where possible. Any supply chain design intended to limit the coronavirus impact would entail more backup capacity for distribution, production, and supply outages. The use of alternate sources and plans can limit the risk.

Develop a firm knowledge of suppliers considered to be in the exposed or vulnerable regions. There is also a need to initiate mitigation measures and effectively use time as a competitive benefit.

Unfortunately, while coronavirus has had an significant impact Chinese supplies, it has given opportunity to other competing countries to gain their market share. An example of this Pakistan textile industry.Dr Muddasir Ahmed Banner3. Educate employees and critical suppliers

The welfare of employees is paramount to any plan, as they remain a vital resource. The business ought to educate all employees alongside critical suppliers about the coronavirus (symptoms and precautionary measures) and its impact on supply chain. The loss in productivity from absent employees is likely less than that from a shutting down the entire business.

4. Monitor potential disruptive risks and use dual-sourcing strategies for crucial components

In this case single sourcing is definitely not a good idea! The use of real-time risk monitoring tools for the supply chain can deliver continuous monitoring solutions to keep everyone in the supply chain process updated. The updates could include key developments concerning lockdowns, government policies, updates on possible transportation interruptions, and assessment of the overall logistics networks. The reduction in supplier size has developed into a norm that permits the formation of significant strategic associations with several key suppliers.

Nevertheless, given the organic nature of supply chain risks, businesses should consider a strategic cost-benefit analysis on the additional cost of sourcing from other supply areas or nations or suppliers.

5. Create backup plans and test for supplier's outage

Inhouse manufacturing or alternative manufacturing methods (like 3D printing) might be viable backup plans. Do the exercise to assess these thoroughly. Your plan should include contingency strategies for quarantine processes too. A long-term approach may involve setting up good business relations with trusted contract manufacturers or logistics providers who offer similar products from different locations. If required, they can be engaged in creating new production lines set up in the shortest possible time. This may also be an opportunity to develop local suppliers to fill the gaps. These are means of spreading the risk, as well as keeping the economies of scale and transportation costs on the low side.

In conclusion, pinpoint plans to limit the fall out in critical areas of your supply chain. The careful implementation of these may include backup plans for transportation, communications, supply buffer, and cash flow. The involvement of suppliers and customers in developing these plans can consequently help create a better second source separate from the primary business area.

Dr. Muddassir Ahmed is an associate of Bespoke Group Africa and a global speaker, blogger, and supply chain industry expert, and founder of www.scmdojo.com
Posted on August 07, 2020

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