As the coronavirus outbreak continues to spread quickly and surpass the SARS outbreak in 2003, supply chain heads must alleviate instant interruption and make a future pandemic plan.
In December 2019 the World Health Organization (WHO) reported several cases of severe pneumonia in Wuhan, China. The pneumonia, a strain of coronavirus that WHO later named COVID-19, has subsequently spread through China and into other countries all over the world.
As health officials track the virus and make rulings concerning quarantine, supply chain leaders must assess and prepare for how coronavirus will impact supply chains. The complete impact of coronavirus on supply chains might not become clear until the next few months and beyond
The challenge of globalisation:
Currently, the coronavirus outbreak is being compared to the 2003 SARS outbreak. But China is significantly more developed and integrated within the global economy, China has also considerably upgraded its transport systems. Meaning the supply chain consequences go far beyond regional concerns. Travel restrictions, shortage in labour and materials, logistical challenges through increased controls, and hub and border closures will impact much harsher today than in 2003.
How coronavirus could impact supply chain:
Although difficult to predict exact consequences resulting from coronavirus, organisations have started to see the impacts of coronavirus on supply chains, including:
Materials: Shortage in supply of materials and finished goods travelling from or routed through impacted areas.
Labour: Organisations have already begun to feel effects of unavailability in labour due to quarantine guidelines or illness.
Sourcing: Businesses are already being advised to source their goods elsewhere as travel is restricted to many areas, restricting the capability to qualify and certify new business or programs and to conduct business.
Logistics: Many ports and supply networks are experiencing constraints in capacity and availability so if materials do become available, the goods will be stuck elsewhere. Finding alternative routes and means of transportation is becoming increasingly difficult.
Consumers: Already the market is seeing consumers becoming more cautious with purchasing habits due to hysteria about being in public and potential exposure to the virus. Many have already turned to online shopping, creating another challenge to logistics networks.
Preparing supply chains for disruption
Interruptions occur. Leading supply chain organisations create and utilise enhanced risk management plans and processes. They include a structure to constantly assess vital risk indicators and prepare scenarios for controllable and foreseeable uncertainties such as compliance, labour, material, capacity and financial issues.
Epidemics and pandemics present a different scenario, it is uncontrollable and unforeseeable with a high impact on business. The main impact is a lack of staff, which in turn means decreased productivity and a change in public behaviour in terms of shopping practices and spending.
Short-term actions: Do it now
Create a high risk supply chain interruption monitoring and response plan for countries directly impacted by the virus and potential supply chain exposure from tier 1 and below. If lower tier transparency is missing, build up the plan and prioritize getting the full picture promptly. Its also important to include an assessment how customer spending might be affected.
The next step is to make sure all inventory is within reach and outside impacted areas, this includes researching on where to source goods outside of effected areas. Furthermore, supply chain leaders need to work with their legal and HR departments to fully comprehend any financial implications of not being able to deliver goods to customers and provide support to employees located in impacted areas.
Midterm actions: Do it this quarter
In the midterm, the focus should be on balancing supply and demand as well as building a contingency plan. Evaluate chances to expand the supplier ecosystem and assess or create the organisation’s overall risk management approach. Work with internal stakeholders and critical suppliers to establish a compatible risk management tactic to monitor and prepare for possible material and manufacturing facility shortages.
Long-term actions: Do it this year
Once initial impacts of a crisis are mitigated, it’s important to investigate and foresee the next “when.” Supply chain leaders and their teams can, organise scenario preparation exercises and improve action plans. It is time to discover and develop alternate resources and diversify value chains.
Deal with strategic and concentrated supplies with high value at risk where internal risk capacities to absorb, such as alternative sources, routes, inventory and cash reserves, aren’t enough to ease a major disruption. Being better prepared than competition can create new opportunities when inevitably the next disruption comes around.