Globalisation means that our supply chains are more entwined and complex than ever. When a global disruption like the ongoing Covid-19 virus outbreak happens, its impact will be felt on both social and economic levels.
Disruptions in the supply chain
The Covid-19 outbreak is having a major impact on global supply chains and how businesses deal with their suppliers, especially as governments respond to the growing concerns by closing their borders, imposing quarantines, mandating factory shutdowns and more. The consequences of this are rapidly unfolding.
At Unleashed Software, we know some of our customers are suffering the economic consequences of the viral outbreak. One of our New Zealand metalwork manufacturers who relies on overseas suppliers for their materials has seen huge supply shortages this month. Another customer, an Australian renewable energy manufacturer, has had to put production on hold as they can’t get their parts from China this month, while an engineering company also based in Australia has had to change production plans based on how its suppliers in China are responding to the unfolding outbreak.
This highlights the challenge that many businesses unknowingly face: globalisation and complex supply lines mean that some businesses might be reliant on other countries without being aware of it.
These situations aren’t straightforward, but from the feedback we’ve gathered from customers, here are some recommendations to assist in managing them:
- Firstly, if you know you have shipments on order or are going to order imminently from suppliers in China or other affected areas, then communicate early and frequently with those suppliers
- Review your key customer orders (current and expected), product stock (particularly your top sellers) and the suppliers you use for these products. Check whether it’s possible to source these products from alternate suppliers — potentially from different countries — who are not affected by the issue
- Prioritise your stock allocations based on your most important customers and their requested delivery timeframes
- Implement a clear process for open communication with customers to maintain goodwill. Customer feedback will also help to prioritise orders and manage your stock shortages. For example, a customer may have ordered a large product quantity from habit and when approached directly, is happy for the order to be broken into smaller amounts sent over a longer time period
- Implement a process to update key stakeholders in your business (e.g., Operations, Sales, Finance, Product) on the situation, and to receive their ongoing feedback from customers and suppliers
Read more: DIFOT: A Metric of Supplier Performance
Identifying potential supply chain weaknesses
Hindsight is a wonderful thing, but ideally, you won’t wait until a crisis is on the horizon to start reviewing your supply chain. Here are some indicators your supply chains may need to be reinforced before the next disruption hits:
- You have long lead times across important materials or products— there’s a higher chance a shortage will negatively impact your business. The alternative is to carry more inventory, but this carries higher holding costs
- You rely on sourcing from a low-cost country — sure they’re cheap but you may be risking currency volatility, corrupt governments, unexpected shipping fees and more
- Your primary and back-up suppliers are all close to each other — when disaster strikes one supplier there’s a higher risk your back-up suppliers will be impacted too. As well as disease outbreaks, think earthquakes, floods or power outages
Mitigate the Risks
After identifying potential issues, here are some tips for protecting against a supply chain breakdown:
- Build a strong relationship with the suppliers you work with. It’s always easier to ask for favours when you have a good rapport. They’ll also be more willing to divulge any delays so you can plan accordingly
- On a similar note, develop multiple supplier relationships, potentially across different countries to spread the risk. However, a handful of suppliers you can trust is usually better than having lots of half-hearted suppliers
- Make sure your software works in real-time. Timeliness of information is an invaluable tool for dealing with supply chain problems as it helps you make informed decisions quickly