Globalization has made the world a much smaller place, it has given us much more flexibility and growth. Leveraging the global supply chain, many companies have managed to stimulate growth by reducing costs, increasing volumes and improving efficiency.
On the flip side, an immensely global supply chain footprint leaves your organisation vulnerable and defenseless to disruption from various factors beyond your control. The current disruption caused by the onset of the deadly COVID-19 virus is wreaking havoc across the global supply chain. This level of disruption and global crisis has never been foreseen and most of us are left unprepared and stranded.
Significant supply chain disruptions can reduce your revenue, cut your market share, inflate your costs, and threaten production and distribution. You can’t sell goods if you can’t manufacture or deliver them. Supply chain disruptions can also damage your credibility with investors and other stakeholders, often driving up the cost of capital.
The fact is, for us to completely recover from this pandemic will take months or even years, assuming that a cure /vaccine is identified or the virus just vanishes.
Having seen my share of local disruptions ranging from floods, cyclones and tsunamis, I assure you that the road back is not going to be a walk in the park.
Most organisations do not have a plan for such disruptions, which will make it a struggle for them. A lot has been written everywhere about supply chain disruptions and below are my insights on how we can fast-track the recovery of the global supply chain & setting up a mitigation plan for future disruptions.
THE THREE V’s
1. Increase Visibility
Most disruptions punch a hole through the communication system. There is so much going on that it is almost impossible to keep all the stakeholders abreast of the actions being taken in a real-time basis. In times of disruptions, supply chains have lacked the full visibility needed to come up with a fast and simple solution. Make sure you have all your stakeholders on the same page, review from time to time.
2. Increase Velocity
A vigilant and alert team of supply chain professionals who ensure quick response will drastically improve your response time. Motivate, guide and throw challenges at your team to make quick, simple and practical decisions.
3. Reduce Variability
One of the most common mistakes a disruption leads to is stockpiling of inventory. This is a standard reaction to the bullwhip effect that is created starting from the consumer. Supply chain managers should be able to reduce their safety stock as variability in demand can make the inventory from back-order to excess very quickly. The importance of close coordination with supply partners is paramount.
Actions for Future
After recovering and making your supply chain up-to-speed, it is important to have a plan for such future disruptions.
Inspired by our honorable Prime Minister’s “PM CARES” fund for collecting aid in the fight against COVID-19, I have come up with a “CARES model” for readiness against future disruptions.
The focus should be mainly on Capacity, Adaptability, Resilience, Ethics, and Sustainability (CARES). Based on the CARES model a contingency plan should be documented which will be a ready reference for any future disruptions.
Capacity – Understanding limitations in capacity and plugging gaps to deal with possible disruptive scenarios.
Adaptability – Flexibility of the supply chain to work in disruptive scenarios.
Resilience – How long can the supply chain function without external intervention?
Ethics – Without a strong ethical culture, it’s hard to operate with transparency, flexibility, and robustness. For example, due to a surge in demand, the bullwhip effect is inflating the selling price to gain additional profit.
Sustainability – Can the contingency plan sustain similar results and efficiency as compared to normal scenarios?
This can be achieved by below few simple steps:
- Set up a risk mitigation cross-functional team (CFT).
- The CFT needs to identify contingency plans for disruptions at each level of supply chain (All tiers of the supply chain).
- Fill the gaps wherever no contingency can be planned – for example, you may not have a backup supplier for a critical component.
- Update and test your contingency plans regularly.
- Ensure audits at all levels of supply chain to identify possible future disruptions.
If you fail to plan, you are planning to fail
As with any disruption or natural disaster, it is imperative that we have a plan in place for every possible “What if ” scenario. Many such scenarios might seem far fetched at the planning stage but it is crucial to understand that the only way is to have an answer for all scenarios.
Taking a look at PR China’s example, they had a contingency plan for a deadly virus outbreak as they have experienced SARS and similar outbreaks in the past. At the moment of writing this today, China is up and running whereas many developed nations have failed as they did not have a plan for this “what if” scenario.
Stay home, Stay safe!
This article was first published by the author on LinkedIn.