Many senior executives and business owners have long devoted attention to their supply chains to find efficiencies and cost savings. The global economy has made it less expensive and easier to distribute many components of a company’s supply chain across the world. And, with technology making it easy to track a distributed supply chain, the system has remained relatively stable.
COVID-19 changed all of this. Chinese manufacturing is at a standstill, making it harder for many businesses to effectively manage their supply chain.
Although global manufacturing is beginning to start up, the long-term impact of COVID-19 and related public health measures will reverberate throughout most industries for the foreseeable future. As wholesalers grapple with low inventory, companies’ supply chains are at the levels they were this time last year.
Despite these challenges, there are still tactics and strategies you can implement to brace your company for the after-effects of the COVID-19 pandemic on supply chain issues.
Review Your Existing Supply Chain for Vulnerabilities
It may sound paradoxical to evaluate a supply chain during a global economic challenge. However, there is an opportunity to uncover and understand vulnerabilities. By auditing your supply chains, you can pinpoint portions of the chain that are either struggling to deliver, have fallen apart outright, or are showing signs of stress.
Even if your business hasn’t experienced disruption, you should evaluate current practices. In some cases, you may simply need to perform a test run. In others, you may need to audit your full supply chain to stave off challenges and disruptions that may be coming.
A supply chain audit should include:
- An assessment of a business’s goals, financials, and objectives—Doing so will help frame expected outcomes or help spot deficiencies more accurately. All departments should understand how their needs fit the broader procurement process.
- A review of current contracts—Working with partners (existing and new) that have competitive pricing is crucial, but it must be balanced with assurances that these partners can deliver on promises.
- Warehouse visits—On-site checks of inventory can provide quality assurances, confirm vendors have adequate stock, and ensure that business practices meet necessary compliance requirements, if any. This is particularly important in the e-commerce sector and its long-tail influence on industrial real estate, as well as how it has transformed the entire supply chain with “need it now” consumers.
- Consider risk factors—Apart from vendor relationships, wholesalers rely on imported goods, which may have vulnerabilities—even if they do not deal directly with overseas suppliers. Many domestic wholesalers are impacted by overseas production stoppages. It’s important to conduct supply chain inventory back up planning, as well as business continuity planning to identify and avert potential business interruptions.
- Financial and operational risk reviews—Ample warehouse supply could help pay dividends long term even with additional costs due to building out redundancies. Considerations will vary depending on a company’s circumstances.
Business owners also have liability in every step of the supply chain, including regulatory oversight, counterfeit parts, overseas demand, and consumer demand. For this reason, it’s important to conduct supply chain inventory back-up planning, as well as business continuity planning to identify and avert potential business interruptions. You should consult your insurance partner to understand if your current property policies include supply chain interruption coverage and for which causes of that interruption.
During a crisis, it is important that business owners and individuals learn what worked and—perhaps more importantly—what didn’t. We strongly suggest enabling predictive analytics capabilities to allow your company to anticipate future trends and respond proactively. Data visualization tools such as Tableau can encourage necessary changes.
Seek Out Alternative Sourcing
While many businesses design their supply chain to maximize efficiency and reduce costs, it could leave them exposed to supply chain disruptions if they haven’t diversified their supply or can’t do so quickly. You should also consider supply chain management insurance coverages. Insurance is a way to transfer risk and is a form of capital.
Business owners should get pricing and quotes from different vendors. Prices may vary, but building in redundancies to help forestall supply chain emergencies may make these expenses a worthwhile investment. Consider sourcing a certain percentage of goods from several partners at critical junctions to ensure product availability at any given time.
Finding alternative vendors to manufacture or supply components may be challenging but searching and establishing contracts early could prevent impediments later. Short-term contracts not only help patch near-term supply chain issues, they can also aid fast-acting companies in fulfilling orders first.
Understanding cybersecurity protocols is also important when evaluating contracts and partners. A data-related disruption to a third-party vendor can significantly impact your business financially. Cyber insurance can mitigate such revenue loss via risk transfer by providing coverage regardless of the cause.
If building a new vendor relationship quickly proves challenging, consider swapping similar parts or goods in higher supply. If, for example, two products can use the same underlying part(s), given a small design tweak, supply chain weakness could ease, making the struggle worth the effort.
Consider Revising Production and Sales Goals
A crisis often forces business owners to reevaluate their supply chain, production and sales targets, and insurance coverages. The COVID-19 outbreak has forced businesses to shutter indefinitely, it seems. With consumers encouraged to stay at home, spending has dampened. Early signs of a recession may also cause most sectors to contract in terms of sales, employment, and demand.
For these reasons and more, business leaders must reevaluate their projected goals and right-size them to a changing economic landscape. Analyzing past yearly performance—particularly during recessions—can help business owners forecast new revenue figures. This data can also give a glimpse into what revised sales goals might look like. This review may inform your decision when reconsidering stocking needs.
Recalculating inventory needs in an evolving financial landscape is valuable, particularly if a company is likely to miss its anticipated revenue goals due to a supply chain failure.
Designing Supply Chains to Help Contain Disruptions
The focus on efficiency and cost-effectiveness can create vulnerabilities in most modern supply chains.
For example, the 2011 tsunami that hit Japan left several automotive manufacturers unable to get critical components for automobiles made elsewhere in the world. This supply chain disruption caused production shortfalls that could have been avoided by introducing strategic redundancies into their production processes.
While adding vendors from several regions can help insure against major production challenges, business owners can also offset challenges to a specific location by dispersing inventory and warehouses. Simply put, redundancy can be beneficial, even if it is not cost-effective. Your property insurance can also be a backstop to protect against supply chain interruptions. Business interruption from contingent sources of product or components can be covered. As potential vulnerabilities are identified, and while it’s important to protect your business, leaders should consult their insurance partners to weigh the cost of mitigating the risk versus the impact of the risk itself.
It’s hard to tell how the full extent to which the COVID-19 outbreak will impact businesses, and the economy. However, an exposure to supply chain issues could impact a company’s ability to operate. Although it may be an uphill climb, companies can still try to lessen the damage and start running quickly.
All in all, your organization may need capital to realize your international trade vision. M&T Commercial Bank has the expertise and resources to help you sort through your international trade financing options amidst the long-term impacts of supply chain disruption.
Learn more about M&T Bank’s International Trade Finance solutions. Knowledgeable M&T Bank professionals are ready to help with your international banking questions in your region. Contact them or call 1-800-724-2240. If your company is Massachusetts-based, learn more about how businesses in your state have leveraged the region’s assets to expand operations. Tap into our global network to grow your business in these uncertain times.
This article is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.