Supply Chain Crisis Management Tips in the Age of COVID-19
By now, you’re well aware of the health concerns surrounding COVID-19, the mutation of the coronavirus that’s sickened thousands and killed many. It’s disrupting many industries, including manufacturing. The following supply chain crisis management tips are intended to help manufacturers and suppliers weather the uncertainties worldwide.
As countries close their borders, the global supply chain is experiencing increasing disruptions. The last time the United States experienced similar disruptions was in 2005 after Hurricane Katrina; Hurricanes Sandy and Rita also caused significant disruptions to cities and states. However, unlike a major weather event such as a hurricane, viruses impact everyone. It is likely that as the situation evolves, someone you know, someone you work with, or someone you depend on for your supply chain will be absent due to the coronavirus and/or caring for someone who is stricken.
Dust Off Your Emergency Plans
According to FEMA, 40 to 60% of small businesses never reopen after a disaster. FEMA includes “flu” among the top four situations calling for emergency plans (the other situations are burst pipes, server failure, and fire). It’s time to dust off your business crisis and continuity plans.
Activate your crisis management communications channels now, before you need them. With instant messenger platforms like Skype and Slack, you can easily set up a free channel or group for employees. These channels can become your company’s emergency messaging system, allowing you to communicate quickly with everyone in the event employees become displaced.
During the 2005 Hurricane Katrina emergency, companies like Proctor & Gamble took extra steps to ensure they remained in communication with employees and their employees were safe. They even built small temporary communities on high ground for employees displaced by flooding and provided cash relief to those who had to flee their homes. Such steps may be beyond the means or needs of your manufacturing business but communicating with employees and ensuring they are safe is within the means of all businesses. Caring for people costs nothing but time and ensures that your team understands what’s going on with the company and the next steps during a time of uncertainty and heightened emotions.
Supply Chain Crisis Management: What Manufacturers Need to Know
Manufacturers who rely upon China for raw materials, parts, components, or ingredients may soon face shortages. Ships currently at sea transporting goods to the United States may be the last for a few weeks until the viral outbreak abates, and ports reopen. The rapidly changing situation demands a creative and flexible response to supply chain crisis management.
Know Your Suppliers
The first step in your supply chain crisis management response is to review your entire list of suppliers. Your company’s ERP system or accounting system should contain a complete list of companies you’ve conducted business with over the years. Review not just suppliers from the past year but all suppliers. You may need to contact many suppliers, including those you haven’t dealt with in a long time, to find what you need to complete orders.
Consider the following as part of your supply chain crisis management:
- Connect with suppliers you haven’t purchased from in the last few years to make sure they are still in business. Review credit terms and shipping times as well as availability of materials you might need.
- Conduct quick inventory updates now, especially among items in great demand.
- Order frequently needed items. Although we normally caution against stockpiling inventory, now might be the time to bend that rule a bit, especially with components and materials sourced from overseas.
- Find alternative local, American, or North American suppliers with similar goods needed.
Run What-If Scenarios
Run outage scenarios and what-if scenarios now and review them with your team. Discuss approaches to each situation and how you might overcome the potential challenges posed by the what-if scenarios. For example:
- What if we cannot get supplies to complete an order? What then?
- What if our main supplier shuts down? What are the alternatives?
- What if 20%, 30% or 50% of our staff calls in sick?
- What if we find we cannot complete orders due to a forced shutdown? How will we communicate with our teams or with our customers?
- What if we are forced to telecommute? Factory workers cannot telecommute, just the office staff such as sales, marketing, and accounting personnel. What then?
- What if we cannot obtain packaging materials? What alternatives do we have locally?
- How will these alternatives affect price, delivery, or quality?
During Hurricane Katrina, companies in the Gulf Area found they couldn’t ship orders because their packaging materials became soaked with rain and floodwaters. Warehouses filled with cardboard boxes were a total loss. Alternatives had to be found, and quickly. Plastic storage containers enabled some shipments to go out via trucks and private carriers; old-fashioned wooden pallets remained usable and useful. Brainstorm with your team for potential solutions to every aspect of supply chain disruption, including shipping, warehousing, and sales disruptions.
Expect the Unexpected
Hurricanes offer us the best model of what to anticipate with the current COVID-19 outbreak. Like the viral outbreak, these unexpected natural disasters force businesses to cope with completely unexpected situations.
Many companies found, after Hurricane Katrina, plastics and petroleum-based products were in short supply. That’s because the oil refineries along the coasts were closed and/or damaged after the hurricane. Alternatives had to be sourced, and quickly, to fill customer orders.
Keep in mind that we are facing a unique situation with COVID-19. We can compare it to regional disruptions from hurricanes or previous global flu epidemics, but each one posed unique challenges to manufacturers.
The last major global viral outbreaks, such as SARS and MERS, didn’t disrupt the supply chain to the extent the containment approach is disrupting global businesses. The 1918 Spanish Flu epidemic came on the heels of a world war; manufacturing wasn’t the global powerhouse it is today. The challenges your business will face today from this epidemic differ from any seen before, so expect the unexpected.
Accurate Information Is Vital
One important aspect of supply chain crisis management that cannot be understated is the importance of accurate communication. We mentioned before the importance of establishing corporate communication systems that keep employees informed of the company’s status and what they need to do next. But how do you make such decisions? What information should you trust?
Go to respected sources. Many government agencies have specific coronavirus web pages to help you navigate these uncertain times.
Communicate with Customers
As your business wrestles with supply chain disruptions, shortages, outages, and employee absenteeism due to illness or caring for someone who is ill, there’s one other entity in the supply chain to consider: the end customer.
Customers know there’s a crisis, but they may not understand why you can’t fill orders as quickly as before. Just as communication with your employees and suppliers is vital, so too is customer communications as part of supply chain crisis management.
Consider updating your website with a message or alert about possible delays, if necessary. This isn’t the time to make promises about delivery times to your customers. Instead, be cautious. It is better to under promise and over deliver than to disappoint customers.
Keep in close contact with your customers about the status of their orders. Use email, messages, or phone calls to let them know the status and any delays due to disruptions in the supply chain.
Key Take-Aways for Supply Chain Crisis Management
Key points in supply chain crisis management include:
- Knowing your suppliers and alternatives to current suppliers should disruptions occur
- Having or updating contingency and emergency plans
- Establishing crisis communication channels for employees, suppliers, and customers
- Evaluating “what-if” scenarios and discussing alternatives now, before they become an emergency
- Switching from overseas suppliers or sole-suppliers for materials to multiple suppliers to mitigate supply chain disruptions and the risk of complete shutdown due to dependency on a single source
- Source locally, if possible, since foreign sources of materials may be the most impacted, especially shipments from China and Korea
- Care for your people. Know your employees and ensure they have the resources they need to care for themselves and others in the emergency. Take a flexible approach to working arrangements, if possible, especially for staff not required to work on premises (i.e., accounting, office staff, marketing, sales, human resources.)
- Listen to state and local emergency officials regarding mandatory closures.
- Gather information from accurate sources such as the CDC regarding symptoms, prevention, and other measures for dealing with COVID-19.
We’re entering a difficult business era when the economy may be shaky for a while until life returns completely to normal and the danger of contracting or passing along COVD-19 is past. Until then, focus on people management, supply chain management, and ensuring your business remains healthy.
Mindover Software provides consulting, sales, training and support for ERP, CRM, and other software. For more information, contact us or call 512-990-3994.