Reacting to the global supply chain shakeup
By ATB Financial 24 April 2020 5 min read
It comes as no surprise that the COVID-19 pandemic has impacted the exchange of goods throughout the world. It instigated an extraordinary shock to both the supply and demand sides of the global economy. Company shutdowns rippled across multiple sectors, so much so global supply chains have been upended in unprecedented ways, forcing business owners to reconfigure their production and shipment strategies.
Weathering these vulnerabilities takes resilience and fortitude, as well as an open-mindedness to reorganizing supply chains that may have never been visible to overworked business owners overwhelmed with other responsibilities throughout the year. Also, on an optimistic note, addressing supply chain challenges brought on by COVID-19 may actually result in a positive shake-up that was perhaps overdue for many businesses across Canada.
Create contingency plans based on supply chain mapping
When it comes to assessing what business owners could do to better understand the risks to the supply chain in light of COVID-19, the first step would be to develop a rudimentary map of the supply chain flow for their products, says Ed Straw, Head of Advisory Solutions and Advice at ATB. He notes that a couple of the questions they should ask themselves include: How have these suppliers fared during the crisis all the way up the line? Is there a geographic concentration or a hub of transportation concentration?
He goes on to say, “Identify the critical key inputs for the business and build out contingency plans for how to get them should primary sources not be available. Make sure to mitigate the risks regarding geography and transport methods.”
In a perfect world, those contingency plans would have even been implemented before a crisis struck. As a Deloitte survey found, 51 percent of US businesses work with suppliers that couldn’t continue to supply goods if they suffered a disaster in one location. The same survey found that 20 percent of companies would go bankrupt within 24 months of a moderate-to-severe supply chain disruption.
Focus on a second source where a product could be manufactured or supplied, stresses Straw, noting how Alberta companies can react to COVID-19’s disruptions by considering local sources. “Or maybe if you need a certain component, could your business work with a local 3D-printing business to make that product for you?” Straw says. “Or maybe there’s a shop down the road who can make that product for you in smaller batches as a contingency to keep you going.”
Supply chain transportation chaos
Logistics and supply chains rely on transportation channels to effectively move goods from one region to another, but COVID-19’s shutdown may have disrupted continuity of those shipping routes. A US mid-March survey by the Institute of Supply Chain Management of 600 supply chain managers revealed that around 75 percent of respondents are experiencing transportation issues in their supply chains.
Air cargo routes may have been grounded so forward-thinking businesses should consider trucking options, even if the delays may upset customers and partners. What is integral is clearly communicating to customers any delays brought about as a result of opting for new transportation strategies.
In the supply chain world, everyone is a customer
To help keep business continuity on track, it’s key to remain open with supply-chain partners on some of the challenges bruising product shipments. Straw says, “Everybody is a customer of someone. You are a customer of your supplier and they want you to be successful.” If business owners are honest about the struggles they are facing with cash flow, or the need to get a certain amount of products out the door by a certain time, no one will be left feeling blind-sided by mini crises within the massive public health crisis.
Straw adds: “Have transparent conversations with suppliers about where you are as a business, and perhaps you can negotiate your terms to pay them in, say, 30 days out instead of sooner. I doubt many suppliers will say, ‘Pay for the last order now or you’re done! They may continue to supply product if new orders are kept current while allowing a deferral of past invoices.’”
Supply chain documentation should go digital
This year’s supply chain shakeup will also wake up business managers who have never sought to fully digitize all the documents and files related to receiving products and parts. For legacy industries that are accustomed to paper docs and faxes to software and online integration, in a perfect world, digitization would have ramped up way before COVID-19 struck. Then again, better late than never.
“There are programs available for companies to eliminate paper and use an end-to-end procurement system that looks after purchase orders, invoice matching, expenditure authorization levels and accounts payable,” Straw says. “Why is this important? It reduces sludge in the system. The customer has a system that amasses all of the performance data of suppliers in terms of shipments, timing, quality, etc. that can be used for forecasting and risk management. The owner can assign authority levels—how much different levels can order, approve and pay.”
Fostering a culture of innovation within a business goes beyond modernizing supply chain logistics, but also signals to employees there is significant consideration paid to applying technology to all units within the company.
Make that financial and resource investment
Organizing a response to supply chain challenges requires investments, which can be difficult for bootstrapped small and medium businesses, but it shouldn’t be ignored. Every business should have some sort of enterprise resource planning (ERP) or whiteboard posting order information and material details, Straw says, which can help business owners make sound decisions during lean times.
Often, bringing in a consultant to assess risks and alternative options if problems crop up could be beneficial to larger firms with the resources to hire out this position, Straw adds.
That consultant can also help business owners understand other issues that may relate to COVID-19 but also refer to trade war and tariff issues, or political risks by sourcing materials from a certain region.
Whether with an outside hire or not, forward-thinking businesses could take the advice of what PwC suggests for companies facing supply chain challenges due to COVID-19: “Conduct scenario planning exercises to understand the operational implications—financial and non-financial.”
Coming out of the other side of this supply chain reordering could benefit companies that were due to fine-tune this area of their business, Straw says. “Owners can conduct an assessment of their critical key inputs and mobilize to ensure stronger resiliency in their supply chain going forward. It is critical to address supply chain issues when the memories of the impacts are still fresh.”