The Coronavirus pandemic has taken the world by storm. With accelerating rates of virus transmission and deaths the global response for containment has increased as well. We need to learn Supply Chain lessons from this tragedy.
Every aspect of our lives has been disrupted: our health, freedom of movement, employment, the economy, our ability to buy goods, and virtually every Supply Chain.
We started to hear about shortages of toilet paper, hand sanitizer, foods and household goods. Now we are starting to hear about shortages of ventilators, masks, and medical equipment.
The list of shortages will only increase at this stage. Apart from the panic buying are there Supply Chain lessons that we should learn from the Coronavirus pandemic to improve the robustness of Supply Chains in the future?
Supply Chain Disruptions … So Far
In early February, 2020, as awareness of the seriousness of the Coronavirus was increasing, we started seeing pockets of Supply Chain disruption. The lines at Costco were huge with people clearly stocking up on items such as toilet paper, water, cleaning supplies and food items.
China was locking down hundreds of millions of people and closing manufacturing facilities. As China is the largest manufacturing country in the world the economic repercussions were really starting to be felt. And with less manufacturing output there were fewer container ships leaving Asia full of goods meaning activity in ports in North America and Europe would slow down rather quickly.
Shortly thereafter the tsunami of infections overtook Europe. Italy locked down the country. Iran and Spain were highly infected. And the U.S. finally had to accept the reality that the virus was here to stay and invade unless serious action was taken.
Borders were closed, air travel curtailed if not suspended outright, cruise ships were quarantined, tourism plummeted, restaurants and theatres were closed, and entertainment and sporting events and leagues were cancelled.
Distilleries and perfumeries have been converting production to make hand sanitizer instead of alcohol and perfume. Automotive manufacturers are looking to manufacture ventilators. War measure acts have been enacted, or are being considered to be enacted, to force the conversion of factories to manufacture high priority shortage items like medical supplies.
The world has never seen this level of disruption of daily life in every aspect. And these have all been necessary steps to help contain the spread of this horrific virus.
The medical community is looking for solutions and treatments to contain, if not eliminate the virus, through existing medicines or new vaccines.
It is also incumbent on the Supply Chain community to consider what we can learn from this situation to improve Supply Chain now and in the future. What are the Supply Chain lessons we must learn from?
Supply Chain Lessons
1. The Importance of Supply Chain Talent
For far too long Supply Chain has been considered a back office, transactional functions placing purchasing orders and moving and receiving goods.
The reality is that Supply Chain is the engine which not only determines the level of success or effective operation of a company, but it directly informs and shapes the strategic direction, growth and competitive positioning of that company.
The current Coronavirus pandemic has underscored the importance of Supply Chain. Further it has made apparent the critical need for Supply Chain leadership at all levels to get us through this situation.
2. Designing in Supply Chain Flexibility
Whether initiated by product design teams, marketing professionals, or Supply Chain staff, the design of products and the resultant Supply Chains defines the level of flexibility that exists to deal with unforeseen circumstances.
A natural starting point is the level of single, or sole sourcing, that is put in place. A sole source is a supplier selected because they are uniquely able to provide the materials or components, whether by virtue of intellectual property or other means of going to market with exclusivity. A single source is a supplier selected as the only supplier, on the basis of varying decision criteria, even though there are other suppliers able to provide those materials.
Whenever a disaster or phenomenon such as the Coronavirus occurs and continuity of supply is disrupted, the predominant reason is disruption due to sole source or single source decisions.
While sole sourcing can provide competitive advantage, and while single sourcing can provide enhanced terms (eg. lower pricing), when supply is disrupted all of these advantages disappear.
Any and all opportunities to source with multiple parties should be considered and designed into your Supply Chain structure. Bills of material should be scrutinized for opportunities to identify substitutes, relax specifications for form/fit/function, and use more commoditized/less unique materials.
This redundancy provides greater contingency and options that can be exercised relatively quickly when a crisis of any kind occurs.
3. Taking Total Cost of Ownership Seriously
Total cost of ownership (TCO) is a Procurement sourcing methodology which entails taking into account all aspects of doing business with a supplier, not just unit costs. TCO models can include variables such as unit price, Accounts Payable terms, cost of quality, lead times, technological value, logistics costs, management costs and more.
The idea of TCO modelling is to better inform sourcing decisions taking into account all of the real costs of doing business with a particular supplier, not just unit cost. However far too many organizations either pay lip service to TCO models or don’t even use them at all.
One result is the fact that companies can end up sourcing products in distant, low cost regions of the world. It is not by accident that China has become the highest manufacturing output country in the world. But having all your eggs in one basket (eg. China) exposes tremendous vulnerabilities when there is a problem.
When China locked down hundreds of millions of people in February, 2020, and innumerable manufacturing facilities were closed, Supply Chains of every type were shut down virtually immediately.
This does not mean that all manufacturing should be done in the country of consumption. But it does mean that Supply Chain design should not allow for sourcing exclusively based on lowest unit price. Sourcing in alternate locations will help to reduce risk by virtue of creating redundancy and natural contingencies.
4. Mission Critical and Strategic Inventory Positioning
Inventory can often be one of the biggest assets in many companies, spanning multiple channels and tiers, and being the biggest determinant of cash flow and return on investment.
As such we have had decades of philosophy associated with lean inventory management, just in time delivery, and inventory minimization.
While these paradigms will continue to be important once we get past this pandemic, it is time to consider inventory positioning.
The panic buying that has occurred with toilet paper, hand sanitizer and basic household suppliers is one matter to be considered. Alternative demand/supply planning models and advanced digital analytics are potential options but the rapidity of the change in demand, and hence supply, have been historic and unprecedented.
But even more significant is the crisis associated with the lack of sufficient healthcare supplies such as ventilators, medical masks, surgical gowns and other medical supplies. Without these items we cannot treat those who are infected and in need of medical attention.
We hear a lot about strategic reserves and stockpiles of oil for instance. It is now time to consider similar strategic stockpiles for items the absence of which will prove to be life threatening. Ventilators and medical supplies certainly make this list. Other items which constitute the basic necessities of life should also be considered.
5. Disaster Planning Taken Seriously
Far too many companies don’t have disaster recovery plans. Or if they do those plans are covered in layers of dust. Or if they are relatively current they are often created in order to tick a box on a checklist with little consideration as to its completeness and viability.
The Coronavirus pandemic is unprecedented in terms of global impact for sure. But there is always something happening somewhere in the world. Specific natural disasters and man made disasters may be unpredictable however the expectation that a disaster of some kind will occur is very predictable.
Worst case scenario planning, audits, rehearsals, and drills must be taken seriously. This should inform further improvements to these plans to ensure they are complete and robust.
6. Exhaustive End to End Supply Chain Mapping
It is insufficient to assume that the Supply Chain sourcing job is done by only looking at tier 1, or direct, suppliers. In most cases your tier 1 suppliers are reliant on their own suppliers (tier 2) who are in turn reliant on their suppliers (tier 3), and so on. A disruption at any tier can bring your entire Supply Chain to a halt.
You must understand all tiers of your Supply Chain. Supply line incongruities anywhere in your chain will disrupt your operation. You need to understand these so that you can put alternate, previously considered, plans into action when required. If you don’t find this out until you are in the middle of a crisis you will be reacting at the most stressful time possible.
This Supply Chain mapping must also include your transportation service suppliers. Whether you ship by land, air or sea you must know who your carriers are at every step. You must know what your alternatives are and have plans in place to enact them on a moment’s notice. Remember that typically everyone else will be scrambling to find carriers at the same time. Previous planning can reduce a lot of anxiety.
7. Design Your Supply Chain for Speed of Response
Anyone who has worked in Supply Chain for any amount of time knows that there is always pressure to do things with speed. Never is this requirement for speed more important than when you are dealing with a crisis or a catastrophe.
The ability to quickly change sources, substitute parts, move inventory between channels, repurpose manufacturing facilities, move tooling, or change transportation modes are indicators of how rapidly your Supply Chain can adapt to any scenario.
Previously I have discussed the concept of the lead time agnostic Supply Chain. If your Supply Chain is truly designed for speed of response then lead time should become less relevant as you are able to response to fluctuations in demand, supply or other circumstances with lightning speed.
8. Don’t Overlook the Role of Reverse Logistics
Reverse logistics is a pivotal lever in the fight to combat any crisis. Recycling, reclamation and refurbishment are more than just good things to do to protect the environment and promote proper sustainability stewardship.
When your supply lines are disrupted the ability to reclaim and refurbish products and component materials can serve as ways to restore some level of supply continuity. Any materials that you can yield through these activities will certainly augment your supply levels and help you buy time until the rest of your supply restoration actions kick in.
9. Real Time Risk Management Governance
Supply Chain professionals must get ahead of any crisis situation quickly. Failure to act quickly and decisively can result in extended catastrophic results. Government delays in seriously dealing with the Coronavirus pandemic are a case in point.
Supply Chain leaders must immediately create War Rooms with dedicated cross functional representation. Worst case scenarios and real time decision making must be undertaken with all possible information provided in real time.
It is often better to do something than to do nothing. If a quick decision is found to be incorrect then you can quickly change that decision and course correct. But that can only be done if you have a real time War Room management mentality.
10. You Must Invest in Digital Supply Chain Technologies
The Digital Supply Chain is characterized by real time, end to end electronic connectivity across your entire extended Supply Chain. With this electronic connectivity you will have all information at your fingertips about what is going on anywhere in your Supply Chain.
Information is power and this real time information gives you all of the power you need to make instantaneous decisions to deal with any scenario.
Any combination of technologies such as Blockchain, the Internet of Things, Advanced Analytics, Big Data, Cloud Computing, Artificial Intelligence, Augmented reality and more provide the platform for creating a Digital Supply Chain.
It’s not necessary to implement all of these technologies at once. But with a long term Digital Supply Chain in place this end to end electronic connectivity will be enabled over time. And it is this connectivity which will put you in the best possible position to deal with any crisis or any eventuality.
The last of our Supply Chain lessons is perhaps the most important for the future.
Supply Chain Lessons in Conclusion
There is always some kind of natural disaster somewhere in the world. Not everything needs to be as cataclysmic as the Coronavirus. So it makes sense to improve Supply Chain accordingly to better deal with ANY type of disruption or disaster.
Certainly many of these Supply Chain lessons will cost more in terms of resources, time and money. But given that there is always something that happens somewhere to anybody the real long term cost should be negligible when you honestly consider the costs of disruption.
What additional Supply Chain lessons do you think we need to learn from?