For decades, best practices for supply chain management have emphasized a focus on cost reduction, inventory minimization, and increased asset utilization. While these are indeed helpful tenets, their heightened importance above other factors like visibility has removed buffers and the flexibility to absorb disruptions.
The COVID-19 crisis has revealed the vulnerabilities of supply chain relationships throughout the world. In particular, companies with a heavy dependence on China to fulfill orders for finished products and raw materials are feeling the pinch. Over 200 of the Fortune Global 500 firms have a presence in Wuhan, the province of China that has been identified as the source of the outbreak. It goes without saying that the pandemic has created shockwaves from the source outward, with distribution networks taking a major hit.
Given how quickly the pandemic has spread, there is very little hard data on the business ramifications. The situation continues to develop daily. But many, if not most companies are sharing a mutual concern about depleting stock, and fears of not being able to meet contractual obligations.
We can anticipate that in the short term, cost of supplies from China will increase. These could stem from overtime or expedited freight costs, as well as supply and demand issues. Alternative sourcing strategies should be examined, but these also take up time and labour to identify new operations scenarios and understand their impact on the business.
Remaining competitive during global shortages
In the immediate sense, companies directly affected by the outbreak are taking measures to distance themselves via safety precautions. These include:
– Transporting inventory to ports away from quarantine zones for expedited shipping
– Securing overtime assembly capacity where possible
– Procuring extra inventory that is in short supply
– Exploring air transportation options to shorten ocean-based lead times
– Leveraging pre-approved parts or materials substitutes if primary supplier is affected
– Communicating with customers about delays ahead of time
– Optimizing near-term revenue by offering discounts on immediately available inventory
– Rerouting products previously headed to China
– Selecting alternate sources of supply from other countries or local products – margins could be problematic but keeps the business afloat
– Seeking out competitors for bulk purchasing which may persuade vendors to be more attentive
– Considering temporarily raising prices (due to bottlenecks) to accommodate more costly source of supply
To remain competitive, it’s critical to be thinking outside the box, exploring a variety of possible scenarios, and moving towards proactive modeling solutions.
Know your supply chain
It’s advisable now to increase visibility into the line of sight for capacity of first, second and third-tier suppliers. This knowledge of where components and sourced sub-assemblies originate will provide extra lead time for distribution.
Explore new tools
New tools and technologies can increase business intelligence. Now is the time to explore how machine learning can enlighten your team on the patterns that indicate risks or opportunities in exchange rates, geopolitical conflicts, and macroeconomic trends. Landed-costs tools should take into consideration new legislation pertaining to carbon offsets, as well as the cost of re-routing in the event of a port distruptions.
Additional business protections
If your company operates in, or has business relationships within China, we recommend that you also take the additional precautions as soon as possible:
– Provide employees with ample COVID-19 education regarding symptoms and prevention
– Introduce screening protocols
– Be prepared for employee absences
– Promote remote working scenarios
– Place restrictions on non-essential travel
– Utilize IT to align with current work requirements
– Update succession plans
– Pay attention to cash flow
Supply chains of the future
Though no one could have predicted exactly how the COVID-19 pandemic would unfold, a dramatic interruption of traditionally held tenets of supply chain management has been in the works for years. As technology has evolved, and the global market has become further intertwined, the tools of yesterday were beginning to show their cracks anyhow.
Moving forward, the traditional linear supply chain model will instead take the shape of digital supply networks, in which functional silos transform into end-to-end visibility throughout a complete supply network, with greater emphasis on collaboration, agility, and optimization.
Enhancing efficiencies amid COVID-19 factors
Regardless of your current state of preparedness, the professionals at Zeifmans can assist your organization in responding to the challenges that the COVID-19 pandemic has created. Even during this trying time, our team is 100% operational, available to help you navigate and remain profitable regardless of the economic conditions.
To learn more about how we can help you increase the efficiency of your supply chain management processes, talk to our team today.
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