How to Manage Supply Chain Disruptions - COVID-19 & Beyond
Generally, customers are more likely to have a positive experience with a company if they can find exactly what they want in-store or if their online orders are delivered to their door in a timely manner. Businesses can ensure that they are providing excellent customer service by preventing delays in their supply chain.
However, supply chain disruptions, such as natural disasters and global events, oftentimes occur unexpectedly. This has been seen recently with the coronavirus pandemic, in which the virus has caused many manufacturers and companies to pause production or slow down.
According to a study by the Institute for Supply Management, about 75% of businesses in America have experienced supply chain disruptions due to the pandemic.
Organizations can manage these roadblocks by acting quickly to assess current events and identify potential risks to their supply chain.
What is Supply Chain Disruption?
A supply chain disruption is a sudden interruption or crisis that negatively impacts the manufacturing flow and delivery of goods to consumers.
The supply chain typically encompasses a network of organizations and activities that produce and move a product until it reaches end-users. This includes suppliers that provide product parts and raw materials, as well as distributors who market and deliver the goods.
Any unexpected changes to one or more of these processes can cause a great delay within the whole supply chain, effectively slowing down the delivery time of goods to customers.
5 Examples of Disruptions
The probability that a disruption occurs and the severity of its impact on a company depends on the industry it belongs to and the structure of the supply chain.
In order to be prepared and to establish the proper protocols to mitigate these risks, businesses should be aware of the most common disruptions.
1. Global Pandemics
A pandemic is an outbreak of an infectious disease that spreads across countries and affects many people.
Global pandemics and other forms of public health crises can create a great impact on the supply chain because a large number of companies from different regions may need to change or pause their operations at different stages of the production line to adhere to new health standards.
2. Natural Disasters
Natural disasters, like earthquakes, tornados, wildfires, and floods, can affect many businesses, as well as the global and local economy. These events can cause companies to close down, breaking the supply chain network and causing a shortage of goods.
For example, Hurricane Harvey in 2017 caused $200 million of Texas livestock to be lost. There were also electrical outages and employees were unable to go to work due to floods. This caused a temporary disruption to the flow of goods and services.
3. Delays in Transportation
Many modern companies have been partnering with international suppliers due to globalization and increased trade. This, however, has caused more demands in international and domestic transport, which has led to congestion within the movement of goods.
Delays in transportation can oftentimes be compounded due to other disruptions, such as natural disasters and public health crises. For example, a tornado can cause air shipments to pause if the route requires passing through the affected areas.
4. Product Issues
Goods that are defective or faulty can cause the supply chain to halt because the business may need to reorder a new shipment or the manufacturer may have to reproduce the items.
To prevent disruptions due to product problems, businesses need to establish a quality control system to ensure all goods are made and received according to standards.
5. Fluctuations in Price
Suppliers who change the prices of their products can impact the flow of goods because businesses must take time to evaluate their profitability and consider if they need to find new vendors or increase their own prices.
How COVID-19 Impacted Supply Chains
Most recently, businesses have been dealing with the effects of the COVID-19 pandemic and its impact on their supply chain. For example, many regions have been placed on lockdown to prevent the spread of the coronavirus.
This has caused delays in transportation, as many regions and countries are restricting the movement of land, sea, and air carriers from delivering goods. Such a delay leads to a ripple effect, in which the supply of goods can reach a shortage and productivity within a company can decrease.
Additionally, COVID-19 has also impacted the food supply chain for all types of food production businesses, from grocery stores to restaurants.
For example, lockdowns and social distancing have caused consumer demands to fluctuate. This is apparent with restaurants, in which their sales are declining, as more people shop at grocery stores and eat at home.
With the mandated closure of indoor dining at restaurants, purchase orders from eateries to farmers and suppliers are either being canceled or are dwindling. This causes logistical bottlenecks and shortages of space for unsold ingredients.
Recovery from this disruption is estimated to take 1-4 years, according to industry experts, but this depends on how business owners evolve to the shifts in demand and how well the virus is contained.
Preparing for Supply Chain Disruptions - 7 Steps
Disruptions can occur unexpectedly but businesses can prepare by establishing a strategy to manage their supply chains. By planning and creating a strong defense, business owners can lessen the impact of interruptions to their flow of goods.
1. Develop a Supply Chain Emergency Plan
Creating a backup plan that outlines the different methods of inventory delivery and establishing an emergency budget will help organizations deal with urgent changes to their supply chain. Such a plan will ensure that the company has other suppliers or distributors they can rely on, as well as capital to deal with shortages.
2. Have Safety Stock
Having additional quantities of goods, such as finished products, parts, or raw materials, will help businesses continue to operate in case their suppliers cannot provide these goods due to a disruption.
Companies should plan out which inventory items should be stockpiled and in what quantities. This will ensure that they are allocating warehouse space and money towards inventory that they will most likely be sold.
3. Conduct a Supply Chain Vulnerability Audit
Organizations should conduct a risk analysis to identify the weakest component in their supply chain. This insight helps owners to focus on where they might need alternative processes or suppliers.
When doing the analysis, executives should also examine the various social and environmental factors that could affect their transportation routes. By doing so, preventative strategies can be established according to the potential impacts.
4. Identify Alternative Suppliers
Businesses should compile a list of suppliers they can partner with in case their current provider is unable to complete their duties. Managers should consider suppliers from different geographic regions and foster a relationship with them to ensure they are capable of working with the company.
5. Have a Diverse Supply Base
By working with suppliers from different countries or regions, businesses can mitigate a total disruption to their supply chain.
For example, a company in California that relies solely on shipments from New York will experience a large interruption to their supply chain if travel restrictions are placed on state flights. If the company also has a supplier in California, they may be able to minimize the impact on their supply chain.
6. Work with a Supply Chain Expert
A logistics expert can help businesses navigate through sudden disruptions to their supply chain and help provide solutions to remedy the impact. These experts can identify alternative transportation methods and various fees that may arise.
This can help business owners manage their operations and take proper measures to protect their bottom line.
7. Implement Software
Businesses can gain more visibility of their supply chain by implementing modern inventory management software. These tools provide real-time data reports with key insights on spending, inventory levels, and waste which managers can use to make informed decisions to optimize their operations.
The 6 C's of Responding to a Crisis
In the case of a major disruption, companies can utilize the 6 C's to speed up their response.
- Crew - How and where is the labor force interrupted? What does the business need to do to ensure employees are safe?
- Capacity - Are there constraints to the business's transportation capacity? Can another route or mode of transportation be implemented? Executives should thoroughly consider different factors, such as speed, cost, and shipment size when deciding new transport methods.
- Collaboration - Is there a dependable communication method that allows all partners in the entire supply chain to collaborate and work efficiently together?
- Cost - Does the business have a budget, spending limitations, and contracts that outline how much money they can spend in case of a disruption?
- Community - Has the business secured its supply chain network and ensured contingency strategies are properly executed?
- Customer - Has the company transparently and honestly communicated to their customers about the current circumstance?
5 Areas that Require Immediate Attention
During an emergency, businesses can manage their supply chain, maintain a smooth-running operation, and fulfill pressing demands if they direct their attention to 5 key areas.
By focusing on these factors, companies can also cultivate a stronger foundation and build a resilient business, which will be helpful when conditions return to their normal state.
1. Prioritize People
Executives need to prioritize all of the people in their supply chain, including the consumers they serve. The company should ensure that its customers are aware of the current circumstances of the business and new adjustments that are being put in place to better accommodate shoppers.
Businesses should also quickly implement practices that will help keep their workforce healthy and productive. A reinvented procurement model can be established to outline how the company and its suppliers and external partners can effectively work together to prevent disruptions from further impacting the supply chain.
2. Secure Suppliers
Managers should regularly oversee their suppliers to prevent any delays in the movement of products. Whether the suppliers provide small or large volumes of inventory, it is important to guarantee they are all able to furnish the goods at the expected time.
3. Minimize Spending
Businesses need to track their spending to make sure unnecessary expenses are not coming out of their budgets. Money should be preserved for the future and in case interruptions to the supply chain are prolonged.
4. Update Strategies
Risk management strategies should be updated whenever necessary to help the business build resilience.
For example, if a business finds that its consumer demand for a product is decreasing, it should update its safety stock requirements for that item. This will prevent over-spending and can help the company protect its profit margins.
5. Embrace Innovation
Businesses should find innovative products or services that will satisfy new customer needs. Restaurants, for instance, have been utilizing delivery services and offering take-out during the coronavirus pandemic to reduce the spread of the virus while providing people with restaurant-quality food.
Disruptions to the supply chain are often unforeseen and can happen at any time. Businesses that are prepared with the right strategies will be able to reduce the impact of a crisis and foster a strong foundation that will enable them to thrive when the economy or supply chain recovers.
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- How to Manage Supply Chain Disruptions - COVID-19 & Beyond
- How to Manage Supply Chain Disruptions - COVID-19 & Beyond