Supply Chain Disruption: How to Handle it | Risk Management

The effects of COVID-19 on the world economy and global supply chains are rapidly unfolding and are likely to have wide-ranging impacts to worldwide businesses. Companies that don’t have enough supply chain diversification and/or short inventory might now be tackling significant business disruption and loss. Supply chain risk management plays an imperative role when business is disrupted because of how complex supply chains can be. There are 6 key steps in managing supply chain disruptions to keep a continuing flow of work.


Establish an emergency management centre

“During times of crisis companies should centralize information and decision-making functions”, said MIT professor Yossi Sheffi, director of the MIT Centre for Transportation and Logistics. All information should come to one place so decision-makers can talk to each other and act. In the case of the COVID-19, the majority of this will be completed virtually, he included. While one team concentrates on the business network, servicing customers and suppliers, another team should focus on taking care of employee concerns — for example, maintaining operations, dealing with family issues, and other concerns managed by human resources.


Speak with one voice

Risk and crisis communication is crucial throughout disruptions and companies need to be prepared to communicate with all stakeholders: employees, customers, suppliers, media, shareholders, analysts, and the community.

“The key is to speak with one voice,” Sheffi said, and appoint one key person who will communicate accurate and timely information about the crisis and what the company is doing to stakeholders. “The one voice has to tell everybody exactly what is going on. Don’t try to spin it or blame other people,” Sheffi said.


Swim in your lane

Professor Yossi Sheffi recommended the mantra “swim in your lane”, suggesting that decisions should be made by the appropriate member in the company. An example of this was during the height of the Fukushima earthquake and nuclear meltdown in 2011, a vehicle company in Japan did not have access to modules needed to make heated car seats. So a company vice president made the decision to build the cars without heated seats, which then caused numerous problems for the company, including leather components stranded in the supply chain.


Because of the diversity of components and suppliers that complete a supply chain, choices like the one this company encountered need to be made by individuals who understand what they are doing. “If you are an engineer that deals with seats, you know what can and cannot be done,” Sheffi said. “One of the most important issues in this case is actually to keep the C-suite, the CEO and others, away from making decisions. They should talk to the media, be fully informed all the time, but they should not make the little decisions.”


Map your supply chain and keep an eye on products

Handling supply chain interruption requires making sure suppliers still have a steady flow of parts and resources. The easiest way of diversifying your supply chain is finding out how your supply chain works through supplier mapping. This incorporates factory locations (including headquarters), what each factory produces, and the importance of different components — would you be able to build your product without it, or do you need to find other suppliers for this part elsewhere? Other things to know include each factories operating capacity and supply level. All of this requires supply chain visibility.


As suppliers feel pressure, look out for quality degradation and late deliveries. Sheffi says, as companies look for alternative suppliers. Businesses should also be aware of the financial condition of suppliers that are depended on and be prepared to support them if needed. “Invest in them, extend their credit terms,” he said. “Make sure that critical suppliers don’t go out of business, because then you go out of business.”


Prepare to manage customer demand

Companies should include a plan for how they would handle customer demand during a supply chain disruption. There are several options such as: allocation or product triage. If several manufactured goods use the same part, which product gets the part? Factors consist of financial contributions, customer importance, fairness, and necessity — which customers could go out of business, Sheffi said. Instead of companies scrambling to deicide during crisis, companies should decide on a plan ahead of time.

Businesses can also use substitution, or demand shaping. If a business has some manufactured goods in short supply and adequate supply of other similar goods, companies can raise the price of the sparser product and lower the price of others to shape customer demand.


Plan for recovery

Disruption can be an opportunity for tough business decisions, for example long-awaited reorganisation or cutting non-performing products and customers. “A crisis is a terrible thing to waste,” Sheffi said.

Companies need to think ahead of short-term disruption to long-term business survival. Be sure to keep expertise in house, Sheffi said, through continuity of pay, taking care of families, and allowing for part time work.

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