Coronavirus and supply chain mayhem

Allstate’s “Mayhem” commercials are an apt description of the coronavirus pandemic. The commercials feature Mayhem (actor Gerard Winters) as a major disruption whose effects aren’t covered by cut-rate insurance.  Like Mayhem, COVID-19 is disrupting every industry, company and individual on the planet.

In many ways, global supply chains are in the crosshairs of this global pandemic. According to the Institute for Supply Management, 75% of companies report supply chain disruptions in some capacity due to transportation restrictions, and more than 80% believe that their organization will experience some impact because of COVID-19 disruptions.

KPMG, in an article on CEO response to the crises, noted: “By creating super-lean, just-in-time, global supply chains, companies have increased efficiency and made it possible to serve customers in all parts of the world. But, as COVID-19 has made clear, the hyper-efficient, low-cost-country supply model is not resilient. When the epidemic hit and supply lines were threatened, few companies had sufficient supplies or redundancy in their supply chains.”  

Across the business landscape, companies are consulting their business continuity and crisis management plans. The immediate effects of COVID-19 are occupying leadership and will for some time. Supply chain teams should focus on long-term goals to help the business recover when the crisis passes.

Here are three strategies you can pursue now to be ready for when business starts to recover.

Assess current suppliers for resiliency

How are suppliers responding to and managing the COVID-19 pandemic? How has it impacted their operations? Given the current crisis, it is only natural to look internally and focus on people. When business bounces back, which suppliers will be left standing and can produce their component for your product?

Risk managers would typically give vendors like suppliers a risk rating weighted against their criticality to the supply chain. For the recovery, give suppliers another rating for resiliency.

In this moment, a company’s collective focus is on the coronavirus pandemic. However, there are many other disruptive forces, including natural disasters, data breaches and power outages. Do suppliers have a business continuity and disaster recovery plan? Is it regularly tested for likely disruption scenarios?

Assessing them on how well they can recover from a variety of disruptions helps address business continuity risk in a post-COVID-19 world.

Mitigate risk by diversifying the supply chain

COVID-19 has disrupted the supply chain worldwide. In the wake of this crisis, companies will need to factor in the risk posed by concentrating suppliers geographically. That is in marked contrast from the years of cost and efficiency driving supply chain decision-making.

According to Wharton Business Daily, the crisis has companies exploring ways to mitigate risk. Supply chains are looking into broadening their number of suppliers, increasing local or near-shore sourcing and the option of storing more inventory.

Before adding suppliers or outsourcing inventory storage, revisit how your organization selects and manages vendors. Are third parties properly evaluating? Do new suppliers follow company policies and procedures? For answers to these questions and more, download The 7 Step Guide to Third Party Risk Management. Selecting, reviewing and onboarding new partners often involves different departments. The guide can help keep everyone on the same page.

Add continuous monitoring to regular assessments

In his recent blog, Gartner’s John Wheeler noted the COVID-19 crisis is centered on operations. “It means that the economic impacts from this crisis are driven by a break-down in business operations due to health-related closures.”

COVID-19 is providing the business lesson that it is important to be prepared and proactive.  Periodic assessments remain critically important, but in light of COVID-19 and the trend toward digital transformation, continuous monitoring is essential.

Crises like COVID-19 can impact countries and cities at different time intervals. Continuous monitoring of news like a supplier laying off employees or closing operations would indicate a potential slowdown or interruption to the supply chain. Getting an early notification would be invaluable for decision-makers to consider against alternatives.

For the foreseeable future, business will remain focused on challenges related to COVID-19. It is mayhem on a grand scale. However, when business restarts, supply chains will need to be ready with a new modus operandi. What shape will it take? By assessing current suppliers, mitigating risk by diversifying the supply chain and leveraging continuous monitoring, risk managers can evolve to a more advanced approach for managing risk in the supply chain.

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