Despite the impacts of COVID-19 – and the second wave of shutdowns – using these best practices to manage risk and stay on top of supply chain woes can keep businesses ahead of the curve.
International instability, including the current coronavirus pandemic, has impacted supply chains significantly and led many businesses to re-think their global map of suppliers. Some have localized supply sources; others have created layers of diversification to minimize the impact of any single broken link in their supply chain.
From sick employees absence, businesses temporarily closing and truckers unable to move loads, supply chains have been altered dramatically. As a result, some manufacturing businesses are struggling to create new demand, while others can’t work fast enough to meet it. Either way, many supply chains are in distress.
Those who can mitigate the impact will survive and flourish.
Resilient companies understand their supply chains inside and out. They have strong relationships with their suppliers, who, in turn, prioritize their business. They work with their suppliers to understand all risks thoroughly, and they don’t rely on a single supplier or even several suppliers in a single location. They have completely digitized systems to help them keep track of inventory, as well as materials, and to monitor production schedules.
In short, they have taken steps to support their supply chains and their businesses.
Those who can adequately manage their supply chains will be better prepared to thrive.
Supply chains have become highly sophisticated over the last several decades, becoming more and more vital to the success of a company. But that has also made them susceptible to disruptions and challenges from around the world.
Manufacturers who are struggling to regain equilibrium can and should take steps today to manage their supply chains and better support their businesses. Consider the following best practices:
- Vet all potential vendors/partners. Choosing reliable supply chain partners is no small task and shouldn’t be taken lightly. Ask each vendor to provide you with a certificate of insurance before signing a contract or partnering with them. Review the policy to ensure it doesn’t include exclusions that prohibit them from assuming risk. No one wants to take on risks, but you want your partners to be just as invested in the relationship as you are. In an ideal situation, each partner will stand behind their own product or service.
- Negotiate the right contracts. Once you find the right supply chain partners, negotiate for the greatest indemnification privileges they’ll agree to in order to shift as much of the liability away from your business as possible. Spreading out the risk is one way to ensure you aren’t left paying for everyone else’s mistakes or bad luck.
- Target agility in production. In the event of a disaster, there will likely be shortages of raw and direct materials, especially if your product uses a component part that is also used in a variety of other products. Be prepared to pivot. Alter your production schedules to better fit available inventory or changing consumer demands. Focus on important products that don’t rely on a commonly out-of-stock component part. Finally, communicate with key customers to find ways to minimize the losses, either through alternate suppliers or even through changing deadlines, if possible.
- Prepare for the rebound. No matter how well the organization has weathered the pandemic storm, there will be pent-up demand for products when the crisis is finally over. The organizations that can shift quickly back into full production will be uniquely positioned to capture a larger share of that demand. Preparing for “back to normal” includes rethinking pricing strategies, as costs will be more volatile, as well as utilizing existing relationships to move forward and increase customer base.
- Understand the global market – and its associated risks. In a globalized world, CEOs think nothing of partnering with a supplier in overseas. Because each region comes with its own risks, whether they are related to a global pandemic, a climate, or an unstable government regime, it’s critical to understand how these risks play out in the real world. Businesses should run stress tests for different scenarios in order to prepare for a disaster. Consider a quarterly table-top exercise. Then, when disaster hits, switch seamlessly to an agreed-upon secondary supplier in another location.
- Transfer your risk to Contingent Business Interruption (BI) coverage. Contingent BI, as it is commonly called, is an insurance product designed specifically for businesses that rely on supply chains to produce a product or a service. It covers a situation in which your business is unable to deliver a product or service because of a rift in your supply chain. This is a supplemental coverage to a regular BI policy, but for times when the supply chain is out of your control, it is a great way to transfer the risk away from your business.
- Collect all supply chain data into a single, automated dashboard. Manage all the variables already mentioned – including third-party vendor contracts, insurance coverages and more – by aggregating all your supply chain data into a single dashboard. Automation with AI integration is designed to anticipate disruption and reconfigure, realign and reimagine supply chain solutions to mitigate the impact to your business whenever possible.
Improving visibility across your supply chain – from end to end – will likely require a new approach or a unique risk management solution compared to what has worked in the past. For more information on aggregating your supply chain data into a single solution to create this visibility, contact David Brooks (US) or David Thomas (EMEA), our Manufacturing practice leaders.