Coronavirus Exposes Global Supply Chain Fragility!

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Disaster Recovery Planning and Risk Management processes are foundational elements of any effective Supply Chain operation and strategy. For those who have ignored putting these mechanisms in place you are assuredly now in deep trouble with the Coronavirus situation at hand.

The effectiveness of both these tools enacted by Supply Chain crisis leadership skills are being tested to a historic degree by the outbreak of the Coronavirus.

Given that the epicentre of the Coronavirus is China, the leading manufacturing output country in the world, and given that the virus is cropping up all over the world, every industry and its associated Supply Chain is impacted.

The ramifications for global supply disruption are enormous, and growing. How should Supply Chain leaders be responding to mitigate the impacts and manage through this latest global crisis?

The Coronavirus in Scope

At the end of 2019 China notified the World Health Organization of a new virus, later called the Coronavirus, or COVID-19. Over the ensuing weeks the spread of the virus expanded within and beyond China.

As of the beginning of March 2020 there were over 88,000 cases reported globally and over 3000 deaths. Over 90% of the cases are in China. The number of cases, and deaths, is increasing daily. All of this is now being consider a global pandemic.

Coronavirus

People are not only being quarantined but in China they have taken steps to lock down their citizens to reduce exposure and prevent/mitigate transmission of the virus. There is a partial or total lockdown of a HALF BILLION people in China! Staggering.

So if these people are in quarantine or lockdown they are obviously not working, meaning production lines and logistics operations are idle or working at a fraction of required capacity.

How is it affecting Supply Chains?

Given the current situation, again most acutely in China, factories are either shut down or operating at partial capacity, because employees are rightly sequestered at home. This is significant as China is the leading country in the world for industrial output and manufacturing.

Not only are manufacturing facilities working at levels well below demand, but nothing happens without logistics systems in place. And transportation modes within China are likewise impacted due to both a lack of staffing and a lack of goods available to move.

With fewer goods coming out of China the international logistics systems are slowing, if not stopping. Ocean freighters are not sailing because of the lack of goods available for shipment. Docks and ports are working at a fraction of their capacity for both exporting and importing facilities.

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By extension with fewer goods coming in from suppliers inventory levels will be drying up. The exposure to inventory disruption is certainly a function of the length of the inventory pipeline for any company. The shorter the pipeline the more immediate the impact.

At some point finished goods inventory will be depleted to the point where companies are unable to fulfill customer orders, in turn impacting their financial results and by extension the global economy.

What should Supply Chain leaders be doing?

If you haven’t dusted off your Disaster Recovery plans or your Risk Management strategies by now then you may be too late to mitigate impacts to your organization. Worse yet if you don’t even have those plans in place you are in deep, deep trouble.

And if you are just waiting for the situation to blow over you are acting very irresponsibly. Even a small company outside of China with localized supply lines can be disrupted unexpectedly and irrevocably.

With your Disaster Recovery and Risk Management plans in hand you need to assign a very strong and powerful leader for your effort. There must be a highly visible and supportive call to action pronounced by your C-Level Executives.

The next step is to establish a War Room! A physical room in which to hold all meetings, to track data and information, and in which to make all decisions. The mentality and culture for all those involved must be one of an unwavering sense of urgency.

The War Room team must be staffed by people representing all functions in your organization. Most specifically Human Resources must be a part of the team. The health and well being of your employees, and those of your suppliers and customers, is of primary importance and concern.

The latest news must be immediately conveyed into the War Room enabling the most rapid form of response. Your team must literally have its finger on the pulse of what is going on.

The mission of the War Room team must be to ensure continuity of supply. You must look holistically at the entire end to end Supply Chain. The team must look beyond your first tier suppliers to the 2nd, 3rd and 4th tier suppliers. Further you must look into the inventory levels in every channel and every location in your network.

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Analyses must include identifying inventory levels for all parts and materials at every level of the Supply Chain. This must include identifying sole, or single, sourced parts and the days of supply in your chain. Alternate sources and substitute parts must be identified, including opportunities for reclamation or recycling, and even stockpiling if necessary.

Parameters must be assessed and updated including order lead times, replenishment lead times, transit times, safety stock levels and more. Models which make sourcing award decisions based on lowest unit costs must be updated to include lowest extended costs, including the costs of disruption.

Decisions about outsourcing versus insourcing must be considered, despite the fact that it is not possible to ensure immunity from this issue wherever you go. Any opportunities for short term automation should be considered to reduce reliance on human resources.

From a logistics standpoint you have many considerations. You may need to expand the number of carriers and modes of transportation beyond what you would normally use. Smaller and more frequent shipments may be necessary to get some level of supply restored. Additionally you may need to pay premiums to ship goods, especially if you are considering air shipments.

Through all of this you must be talking to suppliers, not just sending emails. You must meet with them everywhere possible. If suppliers are forced to allocate supply or capacity then those with the strongest relationships will fare better.

The War Room must also have a Supply Line team. These are people who will expedite parts supply, make high level calls, scour the world for alternates, and aggressively and proactively work to ensure continuity of supply.

Conclusion

There will undoubtably be supply disruptions, higher costs, and cash flow repercussions. With this kind of crisis the role of the Supply Chain is to mitigate, if not eliminate, any and all of these impacts.

That is a very tall order given such a daunting global crisis such as that presented by the Coronavirus situation.

Supply Chain professionals must take the lead in managing through this Coronavirus crisis. No one else has the knowledge, skills and the mentality needed to navigate through this crisis successfully.

Originally published on March 3, 2020.

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