Treat the impact on supply chains not as an aberration, but as an expected occurrence in a world where political disruptions, health issues, technology advances, and climate change are all happening at the same time.
Virtually every global company has indicated that the Coronavirus is hurting them by reducing the number of products or components they are making in China and dramatically reducing the size of the Chinese market.
Even the most powerful organizations are struggling. Apple, for example, cannot receive the quantities of iPhones and other products that the market needs. Tesla has had to put its business in China on hold. Since almost all manufacturing companies have a substantial portion of their supply chain based in China, either directly or through Tier 1 or Tier 2 suppliers, capacity has dried up because factories are closed or understaffed.
“What should we do?” is a common question we hear from supply chain leaders today. One of the first steps we recommend is to set up a “war room.” Almost all the companies we work with have a supply chain “war room” that is tasked with tracking and responding to the Coronavirus crisis.
The Art of the War Room: How to Staff and What to do
- Led by supply chain executive with people from sales and marketing, operations, IT and finance
- Minimize the impact of current and expected reductions in parts, products, and services
- Develop alternative supply sources
- Determine legal repercussions “failure to deliver” could have on the company and customers
- Evaluate sales, marketing, product launch plans for the need to change given expected shortages
- Estimate the impact of the Coronavirus on financial results
- Monitor Coronavirus developments to see if the risk is increasing or decreasing
- Determine the most effective way to protect employee health including travel bans, fewer meetings, and enhanced sanitation
War room participants are trying to learn from the SARS epidemic in 2003, but it is clear that the speed of infection is higher now and death rates are uncertain. It is also true that the supply chain elements based in China are much more intertwined with global companies than during the SARS epidemic. It took the medical community 20 months to develop a SARS vaccine. How long will it take for Coronavirus? War room members have to develop plans based on how possible scenarios develop.
Some companies say that production in their China facilities is below the usual level but returning to normal. They say that the impact will be felt, but only over the next few months. We hope that this is true for China, Italy, Iran and the rest of the world. It might be that the companies that are issuing revenue and earnings alerts are too pessimistic. But companies and countries around the world are erring on the side of caution. It is prudent to take action now and make sure that we can keep things running.
Five things to do right now
Every supply chain has a different level of exposure to the Coronavirus. However, every company should do the following four things:
- Set up a war room that reports directly to the Executive Committee.
- Establish risk exposure in terms of selling into China and your supply chain operations in China. This should include an inspection of Tier 1,2,3 suppliers and their risk exposure.
- Develop a battle plan that takes into account Demand, People, Technology, Risk and implement your plans with speed.
- Decide how you will cope with the increasing spread of the Coronavirus to the rest of the world.
Longer-term alignment
It is unclear how companies will reshape their supply chains given the Coronavirus tragedy. Our advice is to treat the Coronavirus supply chain impact not as an abnormal exception, but as an expected occurrence given a world where political disruptions, health issues, technology advances, and climate change are all happening at the same time. Take the opportunity to do four things once Coronavirus has been defeated.
- Implement a “Nomadic Sourcing” requirement. The supply chain should be able to rapidly shift to other locations. Sometimes the shift will be driven by labor costs, other times by trade conflicts.
- Execute a Digital Supply Chain plan that calls for increased automation, 3D manufacturing and other technologies that speed execution.
- Develop an ecosystem of suppliers that have a commitment to meeting your requirements, even in the face of challenges.
- Make sure that your supply chain leader reports to the COO, CEO or Executive Committee. They have a huge impact on your success and your customer’s happiness.
The Digital Supply Chain Institute believes that supply chains can impact customer happiness, increase revenue, reduce cost, and manage risk. Now is a good time for companies to demonstrate how to make that happen! The Coronavirus might be the unfortunate crisis that forces companies to accelerate the adoption of a true Digital Supply Chain.
Register here to request an invitation to our Coronavirus Collaboratory on 17 March, 09:00 – 10:00 am EST. We’ll have a panel of supply chain leaders sharing how their companies are responding.
