How to Prepare for Major Supply Chain Disruption
Right now, we face the most serious threat to global supply chains in our lifetime.
Globalization has made the world much smaller, a shift that has benefited businesses of all sizes and industries. With a diverse global supply chain, your company can stimulate growth by reducing costs, increasing volume and improving efficiency.
But globalization also comes with risks. If your company depends on a network of suppliers around the world, your supply chain is always vulnerable to disruption from factors outside your control, like natural disasters, tariffs, shortages or geopolitical clashes.
Nearly 75 percent of U.S. businesses have experienced supply chain disruption because of COVID-19, according to a survey conducted between February 22 and March 5 by the Institute for Supply Management (ISM). You're probably already seeing repercussions that affect your company's labor, materials, transportation or consumer behavior.
The current crisis is a reminder to all business leaders that disruptions will happen, and we must be prepared with resilient and adaptable contingency plans. I met with Rodney Manzo, Chief Executive Officer of Anvyl, and Mike Corbo, Chief Supply Chain Officer of Colgate Palmolive, to discuss what every business leader needs to know about supply chain management in this dynamic environment. Here are five steps they recommend taking to navigate the current crisis and strengthen your supply chain for future challenges.
1. Plan for disruption.
Unfortunately, threats to supply chains are inevitable. Learn to expect the unexpected, whether it's a virus, a storm or a strike. Develop a robust backup plan — or ideally, several plans — to overcome unforeseen obstacles. When a crisis affects several areas of the world, it can be difficult to forecast when and where it will end. Be prepared for several phases of upheaval, and try to stay ahead of the next chapter.
"When coronavirus first hit China, we were able to react quickly and turn on a contingency plan within a day," said Corbo. "Communication was going out to plants in Latin America to start making toothbrushes to back up supplies in Europe, the U.S. and China. But as the virus spreads through Europe, the U.S. and other parts of the world, China will soon have to pick up the slack. We were backing up China a month ago, but now China will have to start backing up other places. Make your supply chain agile enough to withstand each new stage of a crisis."
2. Develop different levels of contingencies.
Different situations call for different responses. If your supply chain has a global footprint, think of your backup plan as a series of contingencies with spare capacity built in. Create a crisis management team that is responsible for evaluating priorities, weighing tradeoffs and turning on contingencies, depending on the current conditions.
Be particularly vigilant about single-source suppliers when planning contingencies. In case of emergency, can you keep extra inventory from that supplier as a buffer? Can you require a single-source supplier to produce in two separate locations? Make it your goal to always have a backup source.
"We have different levels we can activate, depending on the situation," said Corbo. "If our manufacturing plants in one location are compromised, for instance, a Level 1 contingency may involve making the same product — like a certain flavor toothpaste — in a different location. If the situation escalates and multiple manufacturing locations are unavailable, Level 2 may mean we don't have access to the exact same product, but we can get a similar product from another location."
3. Update and test contingency plans.
A contingency plan should not just be a paper exercise. Make your plans living documents that you test, evaluate and update several times a year. Conduct a trial run of your contingency plans in the real world at least once a year to ensure they are still viable. Note any vulnerabilities or potential challenges, and commit to resolving them before the next test.
"Imagine your primary supplier of a particular material becomes unavailable for weeks or even months," said Manzo. "Do you have a secondary source in place? How quickly can you get that supplier up and running, so you have as little lag time as possible? Test this contingency plan as part of your quarterly or mid-year business review, asking your secondary supplier to produce and send a limited shipment to a certain market. The goal is to identify any weak links before they become real problems."
4. Facilitate real-time collaboration and communication.
Leverage technology to track potential disruptions and share information easily. Look for steps you can take immediately to improve the visibility of your end-to-end supply chain and better communicate with your team members and partners. And begin researching more advanced technologies, such as those using artificial intelligence or the Internet of Things, to make long-term investments in your company's collaboration capabilities.
"Collaboration among all your stakeholders is crucial," said Manzo. "When your whole team has visibility into your entire supply chain, from beginning to end, you are better equipped to identify trends, forecast potential problems and find solutions. Explore tools like Slack, Google Hangouts, WeChat, WhatsApp and other online platforms that can keep your team and suppliers connected across countries and continents during a crisis."
5. Stay ahead of demand.
Demand can be unpredictable during a crisis, and you have to be able to track and analyze it in real time. The demand cycle lags supply disruption, so keep a close eye on current trends, and follow consumer behavior so you can redirect product levels quickly based on changes.
"When something like the coronavirus hits and consumer behavior changes, we need to know as soon as possible," said Corbo. "What we're seeing now is an uptick in demand in the U.S. People are buying a second one of everything — toothpaste, liquid hand soap. All major retailers in the last few weeks have, without any warning, said they want to increase their inventory levels by a week. That is going to affect the supply chain. We're in the middle of trying to cover other things when, all of a sudden, here's a bunch of demand we didn't expect. You must be somewhat nimble to be able to change even when you think you have a situation covered."
The current health crisis is still unfolding, and its full impact is yet unknown. But you can take steps to reinforce your supply chain and develop your contingency plans to safeguard your company against other serious disruptions and prepare for the next crisis.
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