How COVID-19 is Forcing Re-evaluations of Supply Chains

While the pandemic of 2020 isn’t the first time a disaster has impacted supply chains, it is one of the most widespread and significant in recent history.

Despite massive efforts to contain the virus to the Hubei province of China, where it originated, it spread globally. Now businesses around the world are grappling with balancing the needs of human health and the economy.

While the virus’s full effect is unknown, it is creating colossal damage to the global economy and disrupting supply chains around the world. In response, many businesses take one of two routes: do nothing and hope it doesn’t happen again or rethink and transform their global supply chain model.

Here are the top ways COVID-19 is forcing businesses to rethink their supply chain and the advantages of global procurement.

Extended Supply Network Mapping

For the past few decades, companies have shied away from supply network mapping. It takes too much time and expense to justify taking precautionary measures. However, mapping allows businesses to be more responsive when problems hit. They have a better understanding of their supply chain, leading to faster diagnosis and faster response to any crisis. This provides a competitive edge over their competition.

Companies that prepared themselves with supply chain risk management and business continuity strategies are now in a better place than those who did not. The impact of COVID-19 has not been as extensive as they know exactly where their products are sourced, and they kept more diversity as a result.

Diversification is Crucial

Hubei has a much larger part of overseas manufacturing than most companies realized. When their region was struck, many organizations found that their supply chain ground to a halt. They were surprised by the fact that their manufacturing supplies were significantly reliant on one region.

Global procurement is essential to the health of your company. Avoid relying on one place or region for supply to make sure your business does not stop altogether if one area is affected by any crisis, whether political, natural disasters, health, or otherwise.

Utilizing Lean Manufacturing Wisely

For decades, companies have sought to maintain a lean supply to reduce their overhead costs. While it can save money in the short-term, it has caused panic since there is no buffer for the supply chain disruptions. Lean supply may make sense for non-critical parts, businesses must maintain inventory of critical and long lead time parts to be prepared in case of extended periods without supply.

Lean manufacturing should be used judiciously to help reduce overhead. When crisis hits, maintaining a smart supply of critical products can help companies stay in business even if shipping slows or halts altogether.

Contingency Plans Help Mitigate Risk

Product flexibility is critical for businesses during a crisis. While diversification can help companies maintain critical supplies, there are times where production of certain products stops. When secondary sources or raw materials for parts are not readily available, activating product redesigns or substitute material certification resources is crucial.

Total dependence on a single/sole source can be detrimental for your product. Organizations who can redesign their product or materials in case of crisis can mitigate the risk of their supply slowing or halting.

Digitalization is Non-Negotiable

The move toward digitalization has been slow and inevitable for most companies. However, the crisis has made paper and manual processes completely obsolete. Even the most resistance organizations have no choice but to digitally connect with both their customers and suppliers. Supply chains that are managed manually are too rigid to respond quickly in crisis. Making changes to order or changing suppliers manually is lengthy and complex. Digitalization is the only way to be responsive and make changes as fast as possible.

Digitalization provides insights and clarity to everyone involved in the supply chain process. The increased visibility to data means that leaders and key decision makers can have full access to information and gain important insights about disruptions to their supply chain. There can also be an increase in speed and collaboration since all parties will have access to the same data.

A strong and healthy business during a crisis needs the insights and collaboration that digitalization can provide.

Increase in Remote Work and Outsourcing

Stay-at-home orders have caused businesses to rethink how they function, and possibly in a more productive way. Companies that initially resisted remote work and outsourcing are finding that they need to embrace it instead. They are restructuring their IT systems and support to facilitate remote work.

Outsourcing has also allowed organizations to be more flexible for the change to remote work. Outsourced companies, such as procurement, can act quickly when businesses cannot be at an office and allow flexibility.

How Businesses Can Grow in Response to COVID-19

The effects of the current global crisis will likely continue for years to come. However, businesses that learn from the lessons of COVID-19 can grow a more durable and healthier business that will not be as affected by future events.

Companies need to evaluate their current overseas sourcing and procurement strategies. They can then take the necessary steps to develop crisis mode processes to limit the impact on business. SourcX can help with strategic sourcing consultation and supplier diversification with sourcing in India. Contact us today to see how we can help!

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