3 Supply Chain Risk Management Lessons to Use During Coronavirus Crisis

Supply chains around the world are struggling as they face major shifts to production, the movement of goods, modes of transport, and the people who keep everything running. The coronavirus is also hitting some industries with unprecedented demand, making it hard for supply chain managers to know where to prioritize and how to respond.

The crisis is evolving, and we’re starting to get a picture of what happens when a system is reactive versus proactive. While we can’t go back in time to better prepare for COVID-19, we can use the lessons learned so far to protect operations now and when the next black swan event occurs.

To help you prepare, we’ve identified three core risk management steps to take in your supply chain right now.

1.      Understand how you can move things internally

During the coronavirus outbreak, we’ve seen many companies struggle to react while others seem to move mountains in their response. Much of the time, better responses came from those who were ready and could move quickly, or had significant footprints in multiple locations, making movement easier.

Gucci and its parent company Kering are a strong example of what you can do with a supply chain that is spread out and nimble. By changing how they stored goods and moved them to retail locations — replenishing regional goods as they are sold from a centralized location instead of moving an entire season’s stock to each region — the company was able to quickly move inventory that was bound for hard-hit areas and those with high levels of store closures to countries and locations where purchases could still occur.

While Gucci’s supply chain still faces issues — such as limits to available cargo capacity and increased competition across many modes — it shows one way that inventory can be held to make its supply more dynamic and secure.

2.      Get everyone to the same understanding

Accenture and the World Economic Forum (WEF) have a set of essential elements that improve supply chain resilience, and building a common risk vocabulary is at the top. While the WEF’s efforts focus primarily on building public-private sector relationships and resilience, this practice is important for your company’s supply chain, too.

Having a common vocabulary can introduce greater transparency in efforts, assist subsidiaries and small partners with compliance needs, and limit harm from natural disasters as well as corruption and other man-made concerns.

It also might be as straightforward as ensuring everyone knows what an “essential business” is for operational locations.

Teach your partners about your business and learn about theirs. Share how far out you source and plan purchasing, as well as common threats to your business. In the ecommerce space, many concerns are related to security protocols for payments and goods. Clarifying the tools that you use and protocols you follow for orders can help partners maintain and verify security guidelines, improving everyone’s business within that supply chain.

Much of this work includes learning how to share data between partners. You’ll want to discuss systems and platforms that you use to collect data and present reports or dashboards. When this information is able to be shared, either by having direct integrations and joint accounts or through robust APIs, it allows partners to support each other and respond as soon as an issue is understood.

When a supplier upstream identifies a resource gap, it can notify downstream partners for a potential disruption when its source or raw materials will run out — or at least signify that a cost change will occur. Similarly, if end-product demand dries up, this message can be sent up through the supply chain and allow partners to limit upstream purchases and avoid having excess inventory they can’t move.

3.      Fill gaps with local resources

For some companies, it’s possible to perform production or final assembly in multiple locations. If you control these elements, you can minimize supply chain disruption by looking for production partners and materials providers in each of the major markets where you operate.

You could achieve this safety with local resources in one area per country or broader region where the source of those goods is separated. Two suppliers who rely on the same lumber company, even if they are technically in different regions or states, would not generate much risk mitigation.

The more you can spread production capabilities, the greater you spread risk. In some instances, you may face higher expenditures on sourcing and manufacturing/production, but there’s likely some supply chain savings related to reduced transportation and disruption.

Lean on good relationships

It can be hard to keep long-term survival in mind when dealing with an immediate threat. So, your best option in successfully managing your business in a crisis often relies on having the long-term protections in place before the short-term risks arrive.

One of the best things your company can do to improve its supply chain risk tolerance is to build positive relationships when things are good. Be a reliable partner and build a connection with your suppliers, vendors, and customers.

Sometimes, this is as simple as paying on time regularly. You can also send “thank-you” notes or gifts for the ongoing relationship. Even creating a personal relationship with your bank can help you have a person who could be more willing to see your company as a smart investment if you need a loan or other assistance.

It pays dividends to be able to call and ask for someone by name when you need a hand, whether it’s due to the coronavirus or just a delivery truck stuck on the side of the road. The best way we get through any crisis is together.

Guest Blogger – Jake Rheude 

Jake Rheude is the Director of Marketing for Red Stag Fulfillment, an ecommerce fulfillment warehouse that was born out of ecommerce. He has years of experience in ecommerce and business development. In his free time, Jake enjoys reading about business and sharing his own experience with others.

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