Supply Chain Disruption: Managing Impact from COVID-19
U.S.-based SMBs account for roughly one-third of all imports into the country. Supply chain disruption during the COVID-19 era proves to be a critical threat to operations and profitability.
However, means do exist for businesses to mitigate the impact of these market disruptions. Simultaneously, businesses can create improved supply chain protocols to manage such disruptions.
Below, you’ll find insights from Suuchi Ramesh, founder and CEO at Suuchi Inc. and Albert Goldson, Executive Director at The Cerulean Council. Their tips can help your business navigate the current landscape. They can help you chart a path forward to improve you and your business’ resilience in any market.
Immediate Impacts of COVID-19 on Supply Chain
What can SMBs expect to experience as COVID-19 extends its reach across the globe? “The immediate impact will be robust customer demand for current inventory,” says Goldson. Businesses will stockpile inventory, which means suppliers could experience accelerated inventory sell-through. While the initial cash flow could be considerable, there are impending downsides.
Increased demand will cascade into multiple supply chain disruptions. Businesses might find themselves caught between depleted inventory and extensive replenishment delays due to indefinite lead times from overseas suppliers. Goldson states that companies could experience a cash flow squeeze due to uncertain lead times.
Ramesh anticipates that U.S.-based businesses will turn an eye toward risk and shift to an emphasis on local-for-local supply chains. “With more local control, businesses will have a better way to combat macro-economic variables.” Businesses are beginning to consider the impact COVID-19 might have on different areas of their supply chain. Ramesh advises companies to hedge their risks against disruptions from all suppliers.
“Today, it’s the east, but it really could be anywhere across the globe,” she says.
Four Tips for Managing Supply Chain Disruption
The following tips can help businesses to hedge risks and mitigate cash flow disruptions due to COVID-related delays.
Focus on Digital Systems
A supply chain is only as good as its communication protocols. That’s why Ramesh says businesses should consider investing in digital systems to improve communication in their supply chains.
“For companies who are primarily communicating by email or phone calls, when things like COVID-19 happen, communication comes to a halt,” says Ramesh. “If you have a system that connects your entire supply chain, it provides continued communication when something like this happens.”
Diversify Your Supply Chain
Now’s the time to diversify suppliers and initiate outreach to other potential suppliers. When businesses can develop a base of multiple supplier countries, they can still course-correct when one global supply center is affected. While new suppliers might seem to be a short-term solution, Ramesh considers alternative sourcing to ultimately be a long-term play.
“For brands that are lethargic or just don’t have the resources to think about multiple sourcing partners, it’s natural to procrastinate if there are no immediate risks,” she says. “When you’re forced to search for a short-term alternative, if successful, it can turn into a long-term opportunity.”
Goldson advocates for businesses using this time to establish multiple alternative suppliers.
“Even if you already have a secondary source, establish a third source,” says Goldson. “The world economy is entering a period of high risk and uncertainty, and the more options you have, the better you can weather the storm.”
“Stress Test” New Suppliers
Businesses can identify new suppliers and engage in entry-level transactions. Therefore, it’s critical to ensure new partners can meet demands under extreme conditions. Goldson advises that companies occasionally “stress test” suppliers by giving secondary suppliers a larger than usual order to see if they can handle the demand.
“It’s counter-intuitive, but think of how you test your car’s air-conditioner in the winter to make sure it’s running okay after months of non-use,” he says. These stress tests can help businesses identify maximum orders per supplier and create fulfillment strategies for a wide array of supply chain disruptions.
Focus on Compliance and Sustainability
As you put stress test protocols in place, Ramesh advocates for businesses to find a newfound focus on compliance and sustainability. “A disaster like COVID-19 is one thing, but you want to ensure that if any type of similar issue has impacted a partner, they have the procedures, resources, and steps in place to combat the issue and a digital system to record it all,” she says.
Have open and frank conversations with suppliers about current market disruptions. Ask them how their businesses are making adjustments to prevent future slowdowns on their end. Communicating about compliance and sustainable business practices across varied market conditions will ultimately strengthen the relationship between customer and supplier for the long term.
You now have four tips to help you shore-up supply chain disruption in the wake of COVID-19.
By diversifying your supply chain and investing in better communication across the board, you’ll be prepared to withstand market variances both now and in the future.