It’s no exaggeration to say that the current pandemic is posing an unprecedented challenge to supply chain resilience. Broadly speaking, that disruption matters little compared to the continued loss of life; still, for businesses — especially those without significant resources — it matters.
In normal times, most CEOs don’t ask too many questions of their procurement specialists. Now, they are scrambling to find out every detail about their supply chain and how vulnerable it is. Our preliminary data suggests that companies may shift to partner with companies in countries seen as less affected by the outbreak. In fact, the number of due diligence inquiries in China by our clients dropped to 35% in the first quarter to date, compared to 53% a year ago; Mexico and Turkey are showing significant increases. This data isn’t comprehensive and doesn’t capture what’s going on inside of most companies, where executives are struggling to get more granular information from a siloed division that usually doesn’t have to offer it.
Ideally, supply chain contingency plans and processes for this type of extreme scenario will have been put in place years ago. For those that haven’t, here are three steps you can take now to protect your supply chains and minimize disruption to your business.
- Assess. Before making any decisions, it’s vital to make an accurate and comprehensive assessment of your supply chain and its vulnerabilities. That doesn’t just mean checking up on your immediate suppliers; you also need to assess potential vulnerabilities further down the supply chain. Companies often have a pretty vague idea of who’s supplying their critical suppliers and don’t drill down beyond the first layer. At times like this, it pays to have in-depth talks with your suppliers to understand their own stress points and how you may be able to work together to ease them. It’s an opportunity to make sure your suppliers are being transparent with you and to understand that burying their heads in the sand is not an acceptable strategy.
- Be systematic. A holistic, systematic process is necessary to cope with supply chain disruptions on this scale. Procurement departments may be used to put out the occasional fire, but the nature of this crisis is more like an inferno consuming the whole forest. While the big players tend to have strong systems in place, midsized firms often are heavily manual and relatively unsophisticated processes. They might email their critical suppliers with some questions, but that’s a scatter-shot approach that falls short of providing the full picture or an assessment of risks over time, especially if you’re dealing with thousands of relationships. The extent and nature of the coronavirus impact is changing by the day and needs to be assessed accordingly, analyzing the outlook over different time periods.
- Ask lots of questions. Ask your suppliers a series of pointed, detailed questions that elicit clear responses backed by evidence. Send them a questionnaire that digs deep into potential vulnerabilities. Investigate their lag time, inventory, staffing contingency plans and current production capacity. Ask if their suppliers have missed any deliveries. Find out what may change in the next 30, 60 and 90 days. Most likely, they’re as concerned as you are and will welcome the chance to have a frank discussion. Plus, starting this dialogue opens the door to a more transparent relationship in the future — a meaningful advantage.