Overcoming the COVID-19 Supply Chain Strain
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As of April 7, more than 200 countries and territories have confirmed cases of the virus. While we don’t yet know the full scope of the economic fallout from the crisis, the outlook is grim. One forecast from Bloomberg Economics estimates a total of $2.7 trillion in lost output worldwide, equal to the entire GDP of the U.K. The global supply chain has already been hit hard, from China to the U.S. to Brazil, and 94 percent of Fortune 1000 companies are experiencing disruptions because of the pandemic.
My company, Anvyl, specializes in intelligent supply chain technology, and we have been tracking data that shows the ongoing impact of COVID-19 on supply chains. We have captured thousands of global data points across hundreds of factories — from initial POs to points of delivery. Here are some key takeaways from our analysis, as well as best practices to help you mitigate this disruption and others in the future.
What we’ve seen so far: longer lead times and production delays
China implemented a shutdown in Wuhan on January 23, and we began tracking the impact of the outbreak in early February, when our Chinese supplier first started reporting delays.
Lead times provide a simple but clear measure for how the supply strain manifests in our data. We found that for our suppliers in China, lead times have increased by an average of about 20 days since the end of 2019. In other words, if a supplier usually delivers your goods within three weeks, more recently, it has been taking six weeks.
Longer lead times are directly tied to production delays. In November 2019, the average production delay for suppliers in China was five days. In February 2020, the average delay increased to 18 days. Production delays in China have now returned to normal — an average of five days — after two months of disruption. We can estimate that suppliers in other parts of the world will follow a similar timeline. Our U.S. suppliers only began reporting production delays in March, so we can predict that delays will extend through at least June.
What we expect: shipment delays
Delays don’t exist in a vacuum. A disruption in one part of the supply chain has a domino effect, meaning that today's production delay can contribute to next month's shipment delay.
We have seen data that shows shipping delays reliably lag behind production delays by about 30 days. If we believe suppliers can regulate production delays in about two months, as they did in China, then we can expect shipment delays to extend one month beyond that. Following that line of reasoning, U.S. suppliers that started experiencing production delays in March may see some relief in supply chain disruptions by June.
What you can do to protect your supply chain
The current supply chain disruption is extreme, but it is by no means a standalone event. Here are a few steps you can take now to make sure your company can weather any storm.
Start now. Your company will face unpredictable and unavoidable challenges in the future, which is why it’s so important to develop contingency plans before disaster strikes. But it’s never too late to start planning. If you didn’t already have a strategy, invest in one now. Anticipate different phases of disruption and be ready to activate multiple contingencies based on the gravity of the situation.
Put the right people and systems in place. You need an established crisis management team that can take the lead and guide the rest of your company through challenges. Think carefully about the essential roles you need to fill in leadership, operations, logistics, procurement and communications. Determine how the team will centralize information and communicate with full visibility during a crisis.
Be familiar with all aspects of your supply chain. It’s crucial that you develop in-depth knowledge of your supply chain across all levels and tiers. Do regular, in-person supplier audits to understand what each one is capable of in high-stress situations. Identify any possible vulnerabilities that you need to address.
Diversify your suppliers. Diversification will help you safeguard your supply chain against instability. Create a network of diverse suppliers, both local and overseas, that you can use to reduce risks and major disruptions in your supply chain. Establish backup suppliers that you can turn to if your primary suppliers are suddenly compromised.
Build a safety net. Take precautions to ensure your company has both the inventory and the budget to survive a serious supply chain disruption. Increase your safety stock, and consider storing it in multiple strategic locations. Consider your company’s finances, as well as those of your suppliers. If you don’t have a contingency budget already, set one up now so you are financially covered in times of crisis.
We are in the middle of an unprecedented global supply chain crisis, and we have several more months of volatility ahead of us. Think of this challenging time as an opportunity to gather insights about your supply chain and develop new strategies to strengthen it so it can withstand the next emergency.