Discover how to build a strong supply chain in the midst of global risks, like COVID-19
Coronavirus continues to rock supply chains in the United States and throughout the world. In the beginning, we saw freight volumes skyrocket, markets shake, and carrier rates soar. Now, the situation has flipped; demand has slowed, markets have stabilized, and carrier rates have dropped.
We’ve hit the “freight cliff,” and industry leaders are speculating that strengthening supply chains will be one of the first action items for management teams post-pandemic. Incorporating flexibility and alternative methods for manufacturing and shipping goods will keep freight moving in trying times. It also helps to act fast when you sense trouble, create good working relationships with many suppliers, implement the latest technology, keep extra inventory in multiple locations, and localize distribution methods. Let’s break these tactics down:
1. Develop sound processes for making quick decisions and acting on them immediately.
When the market’s volatile, everyday communication processes don’t cut it. Your supply chain team — which might include production, procurement, logistics, and sales managers — must assess its communication needs and meet as often as necessary, especially when the market is changing rapidly. It helps to have up-to-date purchasing, production, and shipping information handy.
Supply management could also prepare an emergency action plan (EAP) to speed up the decision-making process in times of crisis. A solid EAP will help you keep employees safe, ensure business continuity, and minimize damage to company assets in the event of an emergency.
In terms of coronavirus, EAPs might outline: Safety precautions; business compliance with relevant government directives; platforms for daily activities and communication; circumstances that would prompt working from home; and expectations for all employees — whether they were required to work from home or not.
Along the same lines as developing an EAP is analyzing supply chain risk. It’s possible to mitigate disruptions by planning for worst-case scenarios. Before all else, define the components, procedures, and partners of your supply chain. This step will help you plan response protocols. Then, run through different scenarios. Attach monetary values where you can to understand the true impact each situation could have. Lastly, outline the company’s risk management policy for every circumstance.
2. Create relationships with many suppliers — and make them count.
To promote supply chain stability, you must know who you’re in business with. As you select suppliers, consider how they source materials and the overall value they provide. Cheaper prices may indicate lower standards, which could translate to process instability or a poor customer experience. Often, reducing costs isn’t a winning strategy for bolstering supply chains.
Once you’ve started working with suppliers, focus on building trust with them. Being open and honest with them will encourage them to deliver a high-quality work product. What starts as business as usual (regular communication about current demand and forecasts) can develop into mutually beneficial partnerships that increase overall service quality and prove key to survival during times of hardship. If you have a strong rapport with your suppliers, they’ll be much more motivated to find solutions and get the job done when the market threatens to weaken your supply chain.
Forging great supplier relationships also offers the opportunity to implement enterprise resource planning (ERP) throughout the chain. Today’s freight landscape demands real-time information access across the globe, and using an ERP software makes it easy to collect data, integrate business systems, and streamline supply-chain processes. Operating with an ERP could make all the difference during market downturns, improving efficiency and enabling you to take action right away.
One other thing to keep in mind: The more suppliers in your network, the more choices you have for continuing operations if the market dips. If one supplier can’t execute or can’t fulfill your order fast enough, you’ll be able to pivot quickly (by working with a different supplier) so production doesn’t suffer.
3. Use new technologies to your advantage.
Adopting advanced technology will make your supply chain more resilient by adding security, optimizing processes, providing data insights, anticipating obstacles, and updating customers on order statuses. Automated technology allows you to track the location of every unit in each node, preventing items from getting lost, enhancing stock management, and decreasing the occurrence of human error. These are three huge benefits for supply chains when it comes to weathering tough market conditions.
There are a number of new technologies to look into, including integrated circuits, artificial intelligence, radio-frequency identification (RFID), and near-field communication (NFC). You can find more examples here. Many of these solutions are affordable, scalable, and easy to use.
Your supply management team could also assess the feasibility of building a continuity dashboard that aggregates supply chain data at a predetermined frequency, a crisis dashboard that describes business applications of your EAP, and a tool that measures the risks of your single-source suppliers.
4. Establish redundancy in different locations.
For supply chains, redundancy means maintaining excess inventory. If one supplier goes under, you can tap this reserve to replenish supply and keep operations running. This is not how most producers work, however.
The efficiencies of just-in-time (JIT) production save manufacturers money by fulfilling orders without the need for stockpiles. Manufacturers opt not to stock excess inventory unless they must account for predictable business closures, such as holidays. We saw firsthand the downside of this approach during the early stages of coronavirus: Demand surges exacerbate fragile JIT supply chains.
The second variable in this equation is location. Diversifying nodes regionally is key for supply chain stability in an unfavorable market. This tactic offers several pathways for chains to deliver products. If nodes are concentrated in geographically similar places, suppliers have fewer transport options and may experience disruptions in the event of an emergency.
Without a doubt, the best supply chains stay intact with redundancy and regionally separated nodes.
5. Shorten global supply chains.
Another way to reinforce business continuity is by sourcing components from suppliers who are close by. Producing goods near one of your company’s bases boosts your ability to react should the need arise. If your production processes are based overseas, however, meeting demand during a crisis becomes a lot more difficult.
We’ve seen from coronavirus that working with suppliers in other countries can complicate matters further. If you rely on imports, you could end up at the mercy of multiple governments and economies should trouble crop up.
In fact, many experts in supply chain management predict a shift away from China-centric logistics processes and toward production activities in the United States for American companies once the pandemic is over. Finding the right combination of technology — including robots, artificial intelligence, 3D printing, or others — will help them achieve this goal.
The best way to understand the flexibility of your supply chain is by testing it. Your supply management team could take your EAP a step further by running drills for each scenario and analyzing the results. At the very least, verify new supply-chain processes before implementing them into the existing supply chain. Ensuring the management team, employees, and partners are well-versed in the current supply chain practices will take items off the to-do list if something goes wrong and keep your company in a proactive (instead of reactive) position.