Developing a cogent supply chain response to the coronavirus outbreak is extremely challenging, given the scale of the crisis and the rate at which it is evolving.
The best response, of course, is to be ready before such a crisis hits, since options become more limited when a disruption is in full swing. However, there are measures that can be taken now even if you’re not fully prepared. And although its long-term consequences have yet to fully play out, the coronavirus outbreak already provides some lessons about how you can better prepare your company to deal with future large-scale crises.
What You Can Do?
Let’s first look at some actions that can be taken to mitigate the impacts of the crisis on supply chains.
Start with your people. The welfare of employees is paramount, and obviously people are a critical resource. A plan is needed for people too. The plan may include contingencies for more automation, remote-working arrangements, or other flexible human resourcing in response to personnel constraints.
Know all your suppliers. Map your upstream suppliers several tiers back. Companies that fail to do this are less able to respond or estimate likely impacts when a crisis erupts. Develop relationships in advance with key resources — it’s too late after the disruption has erupted.
Plan your supplies with second sources. This supply-chain design provides backup capacity for supply, production, and distribution outages. The backup capacity spreads the risk of a disruption across two sources (as long as the disruption does not also affect the second source location). Consequently, it is better to have a second source outside the primary source region. Although this supply chain design lowers risk levels, it incurs higher administrative, quality monitoring, and unit costs. Also, economies of scale vary according to the amount of supply allocated to each supply source.
Redesign to source locally. This design calls for a company to have production facilities with local sources of supply in each of its major markets. Like the above option, it spreads the risk. Since these sources are dispersed, the economies of scale are lower and the capital costs are higher, but the transportation costs are lower.
These are gross simplifications of many design options that the firm can take to reduce risk and ensure response capacity. A more detailed analysis and assessment is necessary. Obviously, in selecting a design, companies have to weigh the costs of each and how it will affect their ability to serve their customers and compete against other firms. Deciding which design is optimal is not a one-time process. Firms should regularly revisit and challenge their design choices and the strategies that underpin them.
It’s impossible to anticipate the arrival of global crises such as the coronavirus outbreak, but firms can mitigate their impacts by taking supply chain preparedness to a higher level. They should act before a disruption occurs and adjust and execute new plans afterward rather than starting from scratch every time they are plunged into a new crisis.
Focus on your core. Are there core product that you cant operate without. If so ensure you have back up stock or additional suppliers
Adapt your offerings. Can you adjust your product line based on your supply chain for the future.
Run outage scenarios to assess the possibility of unforeseen impacts. Expect the unexpected, especially when core suppliers are in the front line of disruptions. In the case of the coronavirus crisis, China’s influence is so wide-ranging that there will almost inevitably be unexpected consequences. Inventory levels are not high enough to cover short-term material outages, so expect cause widespread runs on common core components and materials.