As a supply chain insider, I’m sure you are no stranger to the devastating effects of COVID-19 on supply chains: Apple is going to miss its March revenue targets; some automakers had to close even production lines outside China due to lack of parts — the list goes on.
It’s great news that factories in China have started to reopen — but the effects on supply chains are far from over.
Manufacturing capacity is still limited because of quarantine and travel restrictions. Issues like scarcity of manpower and additional expenses on sanitization mean increased costs. Let’s also not forget hidden costs like expediting shipments once production starts.
This crisis exposes the harsh truth that traditional supplier risk management has not prepared organizations for disruptions of this scale. A lack of supply-chain transparency and the practice of outsourcing to China on a just-in-time basis — putting your eggs in one basket, so to speak — are jeopardizing our supply chains.
We need to do something about this because — let’s face it — COVID-19 will not be the last of such disruptions.
So, what can we learn from this crisis, and what can we do to prepare ourselves? Here’s my two cents’ worth:
1. Identify critical suppliers holistically and ensure resilience
During peace-time, it may seem far-fetched to plan for what seems like a one-in-a-million chance of a crisis occurring. Based on my observation, companies tend to focus mostly on maximizing cost savings, focusing their efforts on suppliers with the highest spend.
But overlooking suppliers of low-cost items that may be critical to production is a dangerous game. A customized bolt might cost pennies, but without them, you can’t even put your product together, let alone ship them to your customers.
It’s a good idea to look at your bill of materials to figure out which suppliers are supplying items critical to making your products, such as customized parts you can’t quickly get from elsewhere, and tightly regulated parts that will need a lengthy approval process.
You then need to understand who their suppliers are and if their supply chain is resilient. This visibility will allow your team to act preemptively in the event of potential disruption.
2. Diversify your supplier pool
Another strategy is to directly increase your own supply chain’s resilience by practicing dual-sourcing strategy and diversifying your supplier pool — at the very least for the critical items you’ve identified.
You can ensure that suppliers for the same parts are not located in the same geographical area so that they are not vulnerable to the same disruptions. If it’s possible, always ensure that there’s a local source you can tap into in the event of transport restrictions.
The concept of outsourcing to countries like China is alluring for its financial advantage. But protecting your supply chain is crucial to your success.
3. Get real-time supply chain disruption alerts
If this is not something you are looking at yet, I really recommend doing so. Real-time supply chain alerts — sometimes called an Early Warning System — leverage AI to alert you to events that are quickly unfolding or developing.
AI-enabled software can analyze events happening in the supply network and data from various sources much more efficiently than the average human analyst.
For example, an AI-enabled software would be able to flag an unusual increase in shipping delays, pinpointing a possible disruption. From these alerts, your team can take quick actions, like making arrangements to ship additional inventory away from the affected region.
4. Have chargeback clauses
I was debating with myself whether to include this point as it may seem insensitive, but I’ve decided to say it, so here goes: While it may seem unethical in a crisis situation, having a chargeback clause can protect your company in the event of a major supply chain disruption.
Depending on how serious, major disruptions like COVID-19 can cause a huge erosion in your company’s profits. Reduced demand, lengthy delays in production, increased transport costs, increased sourcing cost — all these add up.
When the times call for it, carrying out chargebacks can help your company recover a portion of your losses — perhaps even making a difference between being in the black or being in the red. So, if you don’t have chargeback clauses right now, this is something you should consider for the future.
Not necessarily more work Implementing these sounds like a lot of work — plowing through tonnes of data to make connections, maintaining a larger supplier base, keeping track of contract clauses — but it doesn’t have to be. With today’s advances in technology, your team no longer needs to analyze huge amounts of data manually.
AI can help them do the legwork. AI-enabled software like LVRG can pool together huge amounts of information from your ERP, QMS, and more, and identify patterns that our human analysts may not see.
Actionable insights are presented in a simple, easy-to-understand manner. There are even regular alerts you can set and forget.
AI-enabled software takes away hours of tedious manual work from supply chain professionals, so handling a larger supplier base is not a problem. Not only does this free up capacity for higher-value work, but the insight and data visibility also help supply chain professionals be more impactful when they work on tasks like negotiation and relationship management.
With powerful analysis and predictive capabilities, leveraging AI can be the key to building a resilient supply chain — and saving you a major headache when a disruption does occur.
Let’s take this as an opportunity to improve. The lessons we take away from this COVID-19 crisis will only make our supply chains stronger in the future. Onward and upward!
How has your supply chain been affected by COVID-19? How have you coped, and what do you plan to do in the future? I’d love to hear from you!