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The COVID-19 pandemic put pressure on even the most resilient supply chains. As the pandemic unfolded—and its events created ripples across industries—it shone a bright light on potential challenges and weak spots, some of which resulted in massive disruptions during the global crisis.
As a result, many companies are taking time this year to re-evaluate their risk management strategies—and implement new ones. According to a report from the Business Continuity Institute (BCI), 53.2% of companies surveyed are developing a comprehensive pandemic-specific plan to cover them for supply chain issues, while 32.3% are updating their overall plans to better account for supply chain challenges. In other words, more than 85% of the companies in the BCI survey are rethinking their business continuity and risk management plans this year.
If you find yourself in this same position, we’ll highlight four areas for your consideration. In tandem with the organization-specific planning you’ll do, these strategies will help you minimize the impact of future incidents and reduce the possibility of massive disruptions within your supply chain.
This article represents the first in our Insights from the Pandemic series on the logistics and supply chain lessons learned during the COVID-19 pandemic. By examining many of the areas affected by last year’s pandemic, we hope to offer some insights toward building a more resilient supply chain that’s ready to react to future stressors, both local and global.
Now, let’s examine the first four strategies you might consider as you approach your risk management planning in the coming year.
Strategy #1: Establishing More Visibility into Suppliers
Supplier issues created a number of problems during the global pandemic. In fact, of the companies surveyed by BCI, 73% of them encountered some kind of challenges on the supply side.
A recent study from the international law firm Foley & Lardner LLP on Global Supply Chain Disruption and Future Strategies underscores this point. Respondents were asked to identify the risk mitigation strategies they planned on pursuing in the next year. The most popular answer? 42% of companies surveyed intended to focus on improving relationships with and transparency around suppliers.
If supply issues created challenges in your organization over the last year, increased visibility and transparency could be a great place to start. Although both are industry buzzwords that can start to lose their true meaning over time, on a practical level, “visibility” and “transparency” can simply translate to: “If you want to better manage your risk around your suppliers, you need to learn everything you can about them.”
For example:
- Who are their suppliers? After all, a disruption in their supply chain could easily trickle down to yours.
- Where are those junior-tier suppliers located? Are they all concentrated in a single geographic area? (More on that in a moment!)
- What’s your supplier’s usual lead time? And are they making any moves to prevent disruptions on their end? In other words, if there’s a problem in their supply chain, how likely is it to ripple down to you? And what would that timeline look like?
- When there is a big disruption, like a global event or a natural disaster, who’s the right contact to reach out to at your supplier? Is that person someone with who you can form a collaborative relationship with, or are you just a number in a queue to him or her?
In less uncertain times, you might not need to monitor your suppliers so closely. However, as the pandemic has demonstrated, uncertain times may call for a much closer handle on who you’re working with—and who they’re working with.
#2: Creating Greater Diversity Among Your Suppliers
Along those same lines, the pandemic accentuated the importance of diversifying suppliers. A PwC survey revealed that more manufacturing CFOs have put developing additional and alternative sourcing options on the top of their priority list.
More specifically, diversifying across several dimensions could mitigate the risk of disruptive events. When looking at your suppliers, consider:
- Geography: The COVID-19 pandemic closed down entire cities, and past earthquakes and other natural disasters have done the same. If your suppliers (and their suppliers) are all concentrated in the same geographic area, even a localized incident could create significant disruptions to your supply chain.
- Distance: With the significant delays at the Port of Los Angeles in late 2020 that continue into early 2021, companies who have relied entirely on ocean cargo from Asia have found themselves in a sticky situation. For example, the fitness company Peloton has struggled to satisfy demand as their machines sit in the epic backlog. However, manufacturers who have managed to source raw materials and components within the continental U.S. have managed to keep moving forward.
- Freight Transportation Modes: The pandemic also made it clear that relying on a single mode of transportation to move freight can be risky. Ocean freight blank sailings and the air cargo capacity crunch meant that many organizations had to stay nimble with their selections if they wanted to keep their shipments moving during the pandemic. If you’re not already working with a freight forwarder who can help coordinate these elements, forming a relationship with one could prove useful going forward.
Ultimately, diversity within suppliers will help you mitigate the possibility of a single incident causing massive disruption in your supply chain. With a black swan event like the COVID-19 pandemic, where many different challenges converged simultaneously, you still may experience some supply chain issues. However, if you’ve taken the time and effort to diversify your suppliers, you’ll at least set yourself up for faster recovery.
#3: Maintaining More in Supplies and Inventory
One of the big post-pandemic changes in the wind is a move away from the popular just-in-time (JIT) strategies that kept supply and inventory levels at a minimum in order to keep costs low and efficiency high. However, after the events surrounding the pandemic, a number of organizations are shifting back toward a just-in-case (JIC) strategy, in which they hold more supplies and/or inventory as a buffer against disruptions.
In fact, a survey from the Institute for Supply Management reports that 91% of firms surveyed have adjusted their inventories and nearly 50% are holding more than usual.
At the end of the day, as with most business decisions, there’s a balance to be found. However, whereas the scales had been tipping toward the JIT model, they may be tipping back toward JIC in order to give organizations more breathing room in what’s still an uncertain environment.
#4: Bringing Some Processes Back In-House
Finally, on the more extreme end of the risk management spectrum, some companies are even completely rethinking their manufacturing processes in light of the pandemic.
One strategy that keeps floating to the top? Moving certain processes back in-house.
Although some organizations have shifted manufacturing processes to markets where labor is cheaper than it is in the U.S., advances in automation are giving rise to new possibilities. Although automating processes requires some up-front investment, it may offer the possibility of moving certain functions back onto U.S. soil at a cost that’s not prohibitive. Additionally, regaining direct control of certain aspects of the supply chain—and protecting them from international forces—may make the possibility more attractive and the investment more palatable.
Big Lessons from a Large-Scale Event
Even as vaccines offer the tantalizing possibility of an end to the COVID-19 pandemic, the lessons learned from this global event can be invaluable going forward. If the pandemic exposed supply chain weaknesses and challenges within your organization, your organization has the prime opportunity to leverage them as you create a flexible and resilient supply chain, one that’s built to move forward, no matter what happens in the marketplace.
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If you’re rethinking your supply chain planning this year, our experts would be happy to help. We’ve been helping our clients create resilient supply chains for 30 years, and we’d be happy to talk to you. Get started by requesting a free consultation.
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