Organizations and consumers alike have felt major impacts of the global coronavirus pandemic and the resulting COVID-19 disease. The disruption is being felt across industries, sending shock waves through supply chains in manners rarely imagined.
Black swan vs. cost of business?
A black swan is what economists call an unpredictable major event. Scientists have been predicting that major pandemics are a fact of life and have occurred dozens of times in mankind’s history. The CDC recognises flu pandemics during 1918, 1958, 1959, 1968 and 2009, such as H1N1. There have also been other major events such as SARS, MERS, and Ebola, any of which could have been much more severe if there had been less responsive reactions, gaps in containment or different rates of mutation, but those are just the global health related issues. Other major disruptions that have upended supply chains include Fukushima nuclear disaster, Hurricanes Katrina, Rita, Wilma and Sandy, The Great Recession, trade wars, wildfires, floods, feedstock factory explosions, port strikes, and typhoons.
The role of chief supply chain officer amid disruption
Experts agree that The Chief Supply Chain Officer’s (CSCO) role is to design and implement a supply chain that is robust enough to continue operating through supply and demand shocks brought about by major disruptions like COVID-19, port strikes, tariffs, and hurricanes. Supply chains designed to manage disruptions are also typically very efficient. Consider the following strategies to create a more robust supply chain:
- Supplier risk mitigation
- Flexible supply chain network
- Effective S&OP processes
- Contingency inventory strategy
- Reduce operations transmission risk
See also: Advancing On-Demand Healthcare Delivery
Supplier risk mitigation CSCO must diversify their supply chains not only across different manufacturers, but also across different countries, shipping lanes, and entirely different regions of the world. CSCO can create partnerships with manufacturers in the U.S., Latin America, Europe or other parts of Asia to make necessary investments in automation, technology or skills that would allow them to diversify their supply chains without major impacts to cost. By pursuing a multiple supplier approach, companies can cost-average their pricing while having alternate suppliers in the event of disruptions. Changing the global sourcing approach to include an assessment of supply chain risk is critical. Evaluate the cost of major disruptions through lost sales, expedited freight, idle domestic employees or lost market share to make the strategic business decision on sourcing. Note, inventory can sometimes be used as a buffer, but this is not without cost either. Flexible Network Design Supply and demand require adjustments or alternate supply chains in any type of disruption or state of shock scenarios. Consider the effect of port strikes.
Most supply chains are forced to adjust inbound lanes and route products through different ports and often temporary warehouses. This often lengthens supply chains, increases inbound cycle times, and often leads to stock outs across the supply chain. Contrast this disruption with hurricanes which might shut down distribution centers and roads while creating significant demand spikes. Either scenario requires flexibility to adjust to the new spikes in supply and demand patterns, pressuring supply chain networks to adjust lanes, capacity, inventory positioning and ways to manage.
Developing a robust, adaptable supply chain requires C-level executives to take stock of supply chain strategy, understand potential business risks, and develop mitigation strategies. Performing potential problem analysis to identify points of failure will guide leadership to where their attention needs to be focused. There might also be industry-wide and national policy discussions that need to take place, such as the degree to which we collectively want to have fundamental products like prescription medication and medical supplies produced off-shore that can drive major strategic shifts. Combining this analysis with changing trends on service expectations could result in fundamentally different purchasing and fulfillment networks while reinforcing the need for a mature S&OP process. The end result is that a company’s tolerance for risk will guide the future path and impact to overall costs.
Read also: Digital Platforms in Freight Networks Supply Chain