When the first few cases of Coronavirus (COVID-19) were detected just four short months ago, few could have expected what has now become our new reality. We are in the midst of a global pandemic outbreak that tragically continues to claim the lives of thousands and disrupt the livelihoods of countless others. On top of that, it’s also causing serious business, supply chain and economic disruptions worldwide. From shortages in supply and talent, to quarantine and border closures, the impact is increasing by the day, continuing to wreak havoc on businesses and supply chains.
Coronavirus Impacts on the Supply Chain
The effects of coronavirus are trickling throughout entire end-to-end supply chains. Quarantines, travel bans, social distancing measures and other restrictions are resulting in production slowdowns, delayed land pick-up and slowed seaport and air operations. On top of that, these travel bans and logistic hurdles make it even more difficult for procurement to properly identify alternate routes and bring new suppliers onboard.
According to riskmethods’ customer supply chain intelligence, 81% of manufacturing companies are currently experiencing supply problems due to the Coronavirus. Additionally, their customers have experienced more than 46,000 supplier sites affected in China. Perhaps even more alarming, there’s been a 44% rise in force majeure risk and a 38% increase in production shutdowns. When suppliers can’t fulfill contracts, it has a trickle-down effect across the supply chain and globalized economy. And as the crisis persists, expect to see a spike in financial risks relating to the viability of suppliers and manufacturers. In fact, of all related cases of riskmethods’ customers’ supply chains, more than half of coronavirus-related threats indicate financial distress and instability (56%), which accounts for a 45x increase since January 22, 2020.
Decreased consumer spending is also further complicating global supply and demand. Not only are certain products simply not available in many stores – like the “toilet paper shortage” in the U.S. – but consumer behavior is changing dramatically. With many areas around the world facing quarantines and shelter in place orders, consumers are focused on necessity items – food, beverages, medicine, toiletries, etc. – rather than keeping up with the latest fashion trends, for example. As the decrease in spending due to fear continues, it will slow top-line growth, impacting the upstream supply chain.
What Can Procurement Leaders Do?
In the short term, organizations should actively assess where they have additional capacity in unaffected areas and redeploy that capacity to cover shortages elsewhere. But in order to understand the impact on the production and delivery of goods, enterprises need enhanced monitoring and better visibility into their supply chain. The sooner organizations can increase their visibility, the more quickly they can respond and mitigate the exposure.
There are four critical questions supply chain and procurement leaders must answer right now:
- Which of your parts and products are affected?
- Which of your suppliers are impacted?
- How will the interruption affect lead times and pricing?
- Which customers are affected?
Understanding the current state of your supply chain and factoring in unfolding events can be a difficult process, but it is an essential element of successful mitigation efforts. Visibility into your organization’s risk exposure enables you to be better equipped to identify, assess and mitigate threats to the end-to-end supply chain.
If there’s two supply chain takeaways we can learn from this crisis, it’s the importance of monitoring risk and diversifying your supply base. As we’ve seen unfold, organizations that have been overly reliant on a small set of suppliers or a single country from a sourcing perspective, and those that are failing to continuously monitor and respond to rapidly evolving supplier risk across the globe, are facing severe supply disruptions. The other lesson: organizations should always be preparing for the next unpredictable event by prioritizing contingency plans for disruption and non-compliance scenarios.
The effects of COVID-19 aren’t going to disappear anytime soon. But we will overcome it – we always do. The question is will we learn our lesson? It’s not a matter of “if” the next crisis will hit, it’s a matter of “when,” and we need to be prepared.