With the spread of the Coronavirus continuing to affect global supply chains, we round up some advice from supply chain experts on how to ensure resilience to any disruptions.
The breakout of the novel Covid-19 Coronavirus has already begun to take its toll on supply chains worldwide, from car manufacturing to consumer electronics. Factory closures and staff shortages in heavily-affected regions such as China mean that some suppliers may not be able to fulfil orders, and even then disruption to freight may cause further delays.
Map your supply chain
Professor Richard Wilding OBE, Professor of Supply Chain Strategy at Cranfield University, says businesses can begin ensuring resilience by mapping out their supply chain and identifying origins of supply:
“Covid-19 is a test of risk management processes and resilience in supply chains. Companies need to urgently review their supply chain to find out how exposed they are. That means a clear understanding of where all suppliers are based.
“It’s still common for businesses to just deal with a central HQ of a supplier and not know exactly what route the supplies they need are taking. Companies should map and continually monitor for vulnerabilities in their supply chains in order to anticipate risks and threats.”
Assess your inventory levels
In advice published by the Institution for Engineering and Technology, Tim Lawrence, supply chain expert at PA Consulting, recommends companies look at their inventories as a top priority:
“In the short term, companies should immediately review their inventory levels and policies and ask suppliers to do the same. They should then work with those suppliers to identify the scale and timing of their exposure within the supply chain, including effects that may be hidden.”
Some businesses may need to consider stockpiling, rationing critical supplies or reducing production volumes in the short-term. Companies should also start planning for increased prices on any products that may see spikes in demand due to hoarding, according to experts at McKinsey & Company.
Review your contracts
“Companies should also review their contractual obligations with suppliers, paying more attention to the possibility that they may attempt to claim force majeure and avoid liability for failing to supply,” Tim Lawrence advises.
‘Force majeure’ is a provision often added to contracts to ensure that companies cannot be held liable if circumstances beyond their control prevent them from fulfilling their obligations. Disruptions caused by the Coronavirus outbreak may constitute force majeure, especially if a supplier is directly prevented from conducting business due to the actions of that country’s government. However, the supplier should have to demonstrate they are doing all they can to avert the situation, even if that means adjusting their pricing or lead times.
Trying to find an alternative supplier is not necessarily the right solution in the short-term, says Dr Jonathan Owens, logistics expert from the University of Salford Business School
“Looking to alternative sourcing is not the immediate answer, as this is a more medium- to long-term solution. It is not clear how long it would take to get an alternative in place and operating efficiently. Also, due to the spread of the Coronavirus, we may find ourselves in a similar situation with [a different] source.”
Re-sourcing should only be considered if supply is impacted for several weeks, says Tim Lawrence. Even then, companies should be wary of suppliers that are unaffected, who may face so much demand that they themselves take on more work than they can fulfil.
However, in the long-term it is prudent to assess how diversifying the supply chain and moving away from a ‘lowest-cost’ procurement approach could improve resilience to future shocks, Tim Lawrence explains:
“It is important to avoid clustering suppliers in one region and particularly around similar supply chains. This will be increasingly critical as the world becomes more volatile through climate change and other man-made disruptors. That makes it important to look beyond selecting suppliers based on lowest price only and consider the overall value and the risks in the supply chain.”