Supply chains are complex business networks with the inherent risk of unexpected disruptions. In fact, most organisations identify supply chain risk as their biggest threat.
Yet most companies lack adequate plans to mitigate supply chain disruptions. COVID-19 has revealed these gaps in the global supply chain.
Since China is South Africa’s biggest trading partner, the strain is felt by local businesses that have built their markets on the global trade network. Some are trying to cope with fewer people, while others have seen a dramatic decrease in productivity as customer spending changed drastically.
Accelerated trade growth in recent years means that today’s global supply chains are extremely complex, with manufacturers and distributors vulnerable to just about any disruption.
The impact of China’s prolonged production shutdown between January and March has certainly affected local businesses and manufacturers as they try to deal with the chain reaction of events. The manufacturing sector contributes 14% to SA’s GDP, but during the first quarter of 2020, the seasonally adjusted Absa Purchasing Managers’ Index (PMI) experienced its weakest quarterly performance since 2009.
How COVID-19 affects supply chains:
- Procurement of raw materials and finished products,
- Labour, with more people in quarantine,
- Sourcing, with travel restrictions making new business arrangements challenging, and
- Logistics, with disruption affecting capacity and availability at established hubs and supply networks.
So, what should you do in the short and medium-term in terms of contingency planning and what measures should you put in place to ensure you are as prepared as possible in the long run?
Here are immediate and long-term business continuity steps that you should take to future-proofing the supply chain.
- Put your people first. Your people are your most critical resource, and they’re also having a hard time. Which work arrangements are useful in keeping them engaged and productive?
- Monitor your ecosystem. Implement a system to get full visibility into your supply chain, especially in countries affected by the Coronavirus.
- Develop an emergency plan. What if your factory has a confirmed case of Coronavirus? Establish communication and coordination processes, designate responsibility for decision – making and communication with customers and suppliers.
- Keep your inventory close. Move stock from hard-hit areas and distribution hubs; find local suppliers.
- Know your and your customers’ legal rights. Get legal advice about your responsibilities if you can’t get supplies to customers.
- Review your customer contracts. If you cannot fulfil your commitments, a clear understanding of your terms will allow you to plan and prioritise your response.
- Build a buffer. How can your supply chain be diversified to balance supply and demand?
- Diversify your supply chain and revisit your risk management approach
- Work with stakeholders and your most critical suppliers to prepare for potential material and manufacturing capacity shortages.
- Review business forecasts and run scenarios to determine where you are at risk now (and may be in the future).
Steps to consider in the future:
Technology-enabled supply chain visibility
COVID-19 highlighted the importance of complete visibility in the supply chain. You should follow alternative plans if you know how the change impacts the ecosystem such as creating routes to other suppliers.
Enterprise Resource Planning (ERP) applications integrate all business areas and connect customers and suppliers. A connected environment helps you identify supply chain exposure, manage or mitigate risks, and reduce disruption effects.
Modern business management solutions leverage artificial intelligence (AI) and machine learning-powered platforms to illuminate supply networks and reveal a level of detail that was previously thought impossible.
Nearly 75% of companies reported supply chain disruption due to the Coronavirus – and 44% didn’t have a plan to deal with it. Diversity is your best defence against disruption.
Don’t rely on one or two suppliers; find multiple suppliers for all your products, both locally and in neighbouring countries. If you’re heavily dependent on Chinese imports, for example, consider a “China + 1” strategy, which keeps China as your main supplier but also sources from local suppliers.
Having facilities with local suppliers spreads the risk and could cut transportation costs. What’s more, you’ll help stimulate the economy, reduce economic cash outflows, and support job creation.
Prepare for recovery
Eventually, things get better. Businesses equipped for the inevitable upswing will move faster and secure a larger share of the pent-up demand. They’ll also strengthen relationships with their existing customers and attract new ones.