There has been no larger modern-day impact on global supply chains than the current COVID-19 pandemic. Quickly becoming a major global issue at the start of 2020, it has impacted businesses and supply chains worldwide.
While the absence of toilet rolls in your local supermarket was an early insight into the strains supply chains may face – travel restrictions and ultimately national lockdowns quickly became a very significant and genuine threat to many organisations, particularly those reliant on their supply chains.
So how can procurement help to ensure supplier continuity during periods of supply chain volatility and how can we best prepare ourselves for it in the future . . . .?
Maintaining an uninterrupted flow of products and services from your suppliers within an acceptable time frame and of suitable quality, you can ensure the most important activities within your organisation are protected.
However, generations of focusing on supply chain optimisation through cost reduction and minimising stock levels has left many supply chains fragile and vulnerable to significant shocks. The Institute For Supply Chain Management, reported that a survey they took in March revealed 75% of companies reported supply chain disruptions due to transport restrictions. Supply chains are having to display their resourcefulness and adaptability to cope with the increases in demand, restrictions on transport and reduction in free movement of labour.
So, what actions can we take to ease the burden on your suppliers who may be experiencing a fight for survival during this period while ensuring the protection of your own organisation?
- Prioritise your High-Risk Suppliers – First and foremost you need to understand and identify who your most important suppliers are. This allows you to better target your time and resource to ensuring these suppliers are managed effectively and that issues are identified and acted upon quickly.
- Look out for Financial Distress – Be on the lookout for suppliers in financial distress, and act on any “red flags” they may send out. While suppliers may be unlikely to provide this insight freely, changes to communication patterns and difficulties paying staff or creditors are some of the warning signs a supplier may be in distress.
- Easing Payment terms – For suppliers who do enter financial distress this is a simple yet effective method of ensuring prioritisation of the continued flow of goods and services to your organisation. While some business will need to preserve their own cash flow, others with strong cash positions can target appropriate suppliers who may be in distress to offer favourable payment terms.
- Relaxing SLA’s – Where appropriate it may be suitable to offer greater flexibility to suppliers on the contracted service levels. If you are signed up to 24-hour delivery on a less important item, 48-hour delivery is better than no delivery at all. By working with suppliers to understand their pressure points and easing up on your demands in less important areas, you could be helping them significantly and ensuring the continued supply of the most important goods and services.
- Communication with Key Suppliers – Open communication with your key suppliers is very important, it’s essential that both parties are kept in the loop to avoid any unnecessary pressures and ensure that effort and focus is aimed in the right direction.
While the COVID-19 outbreak and the consequent economic impact is an unprecedented worldwide event, it highlights the need for risk management within a supply chain. There is a constant war raging between supply chain optimisation and supply chain risk management. While a risk-free supply chain may be able to handle whatever the world throws at it, it’s likely highly unoptimised . . . and particularly costly. So how do we find the balance?
They key . . . . identifying and understanding your supply chain risks.
By understanding your supply chain risks you ensure you have complete transparency which enables you to better prepare and plan for significant disruptions. Without understanding your risks, you cannot effectively target your actions, you are stabbing in the dark.
So how do we identify our supply chain risks? Well, there are 5 primary groups of external supply chain risks and 5 internal.
These risks are a result of an event in the supply chain which could be either upstream or downstream.
- Physical – Caused by a supplier’s physical facility, a factory as an example. What happens if the plant is out of operations, do you have a backup supplier?
- Business – Financial performance, mergers and acquisitions, there are many business-related factors than may impact the performance of a supply chain.
- Environmental – This is the very topical risk given the recent events. Economic, Social and Climate are all environmental risks that can impact a supply chain. A global pandemic and economic crash . . .
- Supply – Interruptions to the flow of goods within a supply chain. Again, this is very relevant to current events due to restrictions on labour movement and transport links.
- Demand – Unpredictable demand is again a very relevant and recent manifestation of a key risk. Panic buying saw a huge surge in the purchase of basic products such as toilet roll and hand sanitiser.
These risk cans offer a much greater level of mitigation as they fall within the control of the organisation.
- Cultural – There are many cultural risks. The speed of reaction to an unexpected event is one risks which can mean the survival or not of an organisation. When an event moves as quickly as the COVID-19 pandemic, how efficiently were important decisions being made
- Mitigation and Contingency – Not having the correct policy and procedures in place for dealing with issues and events.
- Planning & Control – Not undertaking sufficient planning will mean any response to an event is poorly managed.
- Business – The loss of management or key personnel can generate significant risks. The unidentified importance of a relationship and understanding between a buyer and seller may be lost.
- Manufacturing – Disruptions to internal operations, another primary example of this happening in the current pandemic is the loss of workers due to restrictions on movement.
While it is impossible to fully mitigate the impact of an event of the magnitude seen from COVID-19, understanding your supply chain risks will provide a far greater level of preparedness and an ability to manage the potential disruption it causes.
If you would like some information on how Oculus Procurement can support your organisation’s supply chain risk management, feel free to get in touch using our contact us page or drop us an email at firstname.lastname@example.org.
ABOUT THE Author:
Having graduated in Procurement and Supply Chain Management from Liverpool John Moore’s University in 2012, Luke commenced his career as a Graduate Procurement Manager at one of the UK’s largest third-party logistics organisations, before moving into financial services and then founding Oculus in 2017. Luke’s roles have all been within centre-led procurement functions leading significant, business-wide procurement transformations, gaining significant experience of the design and implementation of procurement policy.
As one of the founders of Oculus, Luke has worked with clients from a variety of industry sectors such as manufacturing, insurance, financial & professional services, and retail. With experience across a wide array of spend categories, primarily focusing on HR, facilities, and professional services.
Luke’s key specialism is in spend data analytics and cost modelling. Offering the ability to unravel vast quantities of data to build simple yet effective reports providing the insight required to support a drive for change. Through effective Power BI dashboards, Luke is able to offer a level of insight, previously unavailable, to support the identification of areas of focus within an organisations spend profile.