Risk management in these very uncertain times is crucial. Everything, everywhere and everyone is affected making the COVID-19 crisis tremendously complex. (Unexpected) changes occur every day, which makes the future even harder to predict.
This article tries to simplify both the problem and solution, while trying to keep the gravity.
Furthermore, it explores several factors that influence risk to assist companies in making their own assessment.
Managing your supply chain today and tomorrow
1 People and cash will be the most important variables
The current extraordinary situation affects every industry, every person, and every government around the world.
The only two variables which bind all of them together are people and cash.
People were always a major resource, but never a major problem. The result is a major hit on cash positions of companies, governments and in the end the people.
2 Manage supply chain risk
How do you manage this risk? Keep it simple.
A supply chain consists of suppliers, a production or service and customers. Look at each part from a cash and people angle. See table below and answer the question in each box.
Try not to be influenced by the (fake) news. Work on facts and your experience.
If you do not have the resources: plan for the worst, hope for the best.
3 Risk will change over time
The risk will be different today from a few months from now.
Especially in this current climate you need to do the same exercise for at least three different periods: short, medium and long term.
Keep in mind though that suppliers and customers will most probably experience the COVID/economic impact different from you. They might follow a different scenario all together or the same scenario as you, but with a different end and start time.
4 Possible solutions
Although it is a difficult time, there are things that you can do. Look at the solutions below.
Do not forget to look for opportunities.
- Invest in people, machines and processes
- Re-design your supply chain
- Improve your technology
- Buy over competition
You can come out of this crisis stronger.
6 Special note: Complex supply chains or plenty of resources
When you have the resources and/or your supply chain is very complex, you should go into more detail.
Identify multiple suppliers and customers, and multiple tiers.
Group your suppliers and customers into critical, important, moderately important and of low importance.
Evaluate risk for each group using the same method as before.
Group your own production or service into critical, important, moderately important and of low importance.
Also identify critical and non-critical personnel. Do you expect them to be around?
In time of need everything of low importance is the first to be let go.
Factors that will help you determine the risk
Impact of war against COVID-19 on supply chains
Obviously, the current movement restrictions have a high impact on supply chains.
And none of us know how and when they will be eased and when exactly they will be completely lifted.
There are different possibilities:
- Worst case scenario: the highest level of restrictions will be in place until they are completely lifted
- Gradual easing: the restrictions are gradually eased until completely lifted
- Cycles: restrictions are eased, but later tightened again due to a new COVID outbreak. This could happen once or more than once.
The total impact depends on the duration, but also the severity of the restrictions.
TOTAL IMPACT = DURATION x SEVERITY
Once there is a vaccine and this vaccine is readily available restrictions will be lifted. This will take until March 2021 to September 2021.1
So, in this world of uncertainty we do have some certainty.
Severity depends on detection and treatment. The earlier the detection the better the control.
And when we can improve treatment more people will recover faster.
There are different levels that can be imposed, but all will revolve around movement and grouping.
International supply chains: Suppliers and customers can be in different countries and every country will have their own restriction policy. This means that even when you can produce, you might not be able to receive anything from your supplier abroad who is still under lockdown.
Talk to your suppliers or customers and if possible, read up to understand the situation in their countries.
Recession: You should see a recession linked but not the same as the COVID impact on the economy. The COVID crisis will be over by September 2021 latest, but the recession and its aftermath will probably take longer. Again, if you have limited resources, prepare for the worst.
Governments: Government budgets will take a hit: reduced income and increased expenses. Oil sales dependent budgets will face a much bigger income reduction. Depending on the national finances, governments will be able to weather the storm for a long or short time.
Political consequences will be of interest for SME’s with markets abroad, since commercial interests could be affected in the short term.
A last word
COVID has most probably had a major impact on your supply chain. And more disruptions, big or small, are surely to come.
So stay prepared and keep managing your risk!
‘White House advisor Fauci says coronavirus vaccine trial is on target and will be ‘ultimate game changer’, Noah Higgins-Dunn (CNBC.com, 2nd April, 2020)
NOTE: This article is a shortened version of the original. The full 23 page paper can be requested from firstname.lastname@example.org or downloaded from Art of Supply Chain LinkedIn page (posted 21st April, 2020).
ABOUT THE AUTHOR
Art of Supply Chain Sdn Bhd
Jeroen Hendriks is Director at Art of Supply Chain Sdn Bhd, a training and consultancy company focusing on supply chain operations, based in Malaysia.
Art of Supply Chain offers everything you need to tackle your supply chain problems right, the first time, by improving operations quality through Lean Six Sigma, managing projects effectively and efficiently, and advising customers on technological advancements to stay ahead of the competition.