Coronavirus proves that we need more resilient supply chains

summary

Despite the impact of disasters such as the 2011 earthquake and tsunami in Fukushima, Japan, many multinationals still have not built resilient supply chains. This lesson is brought home by the coronavirus epidemic, which has interrupted supplies from China and is now spreading to other parts of the world. This article offers advice on how to create supply chains in order to minimize or avoid risks during disasters.

As governments and health care agencies work to stop the spread of Covid-19 and treat those who are infected, manufacturers in more than a dozen industries are struggling to manage epidemics that are having an increasing impact on their supply chains. Unfortunately, many are facing a supply crisis that stems from weaknesses in their supply strategies that could have been remedied years ago.

The extent of the crisis is visible in data released by Resilinc, a supply chain mapping and risk monitoring company, which shows the number of industry sites located in the areas from quarantine in China, South Korea and Italy, and the number of items from the quarantine regions of China.

Relearn painful lessons

After the earthquake and tsunami in March 2011 in Fukushima, Japan, many multinationals learned painful lessons about the hidden weaknesses in their supply chains, weaknesses that have resulted in lost revenue and, in some cases, market capitalization. While most companies were able to quickly assess the impacts of Fukushima on their direct suppliers, they were blinded by the impacts on second and third level suppliers in the affected region.

Almost nine years later, it seems that the lessons of Fukushima need to be learned again, as many companies around the world are struggling to identify among their invisible lower-level suppliers those with whom they do not deal directly, are based in the affected regions of China.

Many companies probably also regret their dependence on a single company for the items they buy directly. Supply chain managers know the risks of single sourcing, but they do it anyway to secure their supply or achieve a cost target. Often they have limited options to choose from, and more and more these options are only in China.

In many cases, the roots of this current supply chain crisis come from decisions made upstream for example, the supply of a common plastic resin which is vital for many industries from one industry. 39 a supplier or region. Such decisions reverberate through supply chains, even affecting companies which themselves do not source materials or products directly from China but whose suppliers do.

Risk management principles should be applied, at a minimum, to levels 1 and 2 of business supply chains. Beyond level 2, the risks must at least be understood.

In some cases, it will not be possible to find multiple sources for certain parts or materials. For example, a supplier may own unique intellectual property; sometimes the volumes are not enough to justify two sources; or multiple sources are simply not available. In these cases, companies need to supplement their traditional sourcing practices with new data sources and new approaches to understand and mitigate the risks they take.

Monitoring and mapping

At a minimum, companies should invest in 24/7 monitoring of their global suppliers. New technologies, such as artificial intelligence and natural language processing, have made extended vendor monitoring affordable and easily accessible. Just as we would not drive our car without insurance, we cannot manage a globally dispersed supply chain in a rapidly changing world without being aware of the daily news which could cause disruption in the coming days.

Some companies, such as General Motors, have gone beyond that and have spent many years thoroughly mapping their supply chains. Mapping involves engaging suppliers to understand their global sites and their subcontractors, as well as to know which parts originate from or pass through these sites. Companies investing in this type of effort benefit in the event of a disruption, as they are able to triangulate in minutes or hours how their supply chain might be affected in the days, weeks, months to come. When companies have prior knowledge of the source of the disruption and the products that will be affected, they have time to immediately execute avoidance and mitigation strategies, such as training the request by offering discounts on replacement products, purchasing inventory, booking capacity on other sites, controlling inventory allocations, etc.

Of course, being proactive this way comes at a cost. For example, multiple sourcing requires suppliers and eligible locations in different countries. But these costs can usually be offset by reducing the share of business allocated to the most expensive supplier and country. The benefits of being able to move production quickly between suppliers, factories and countries will generally provide sufficient return on investment to justify these costs. The cost of mapping and monitoring has dropped over the past decade. Today, this investment is easily offset by savings in the form of reduced dependence on inventory, manual processes and people and a fast, responsive and agile supply chain that stays operational , despite all the errors that occur every few weeks.

In the first weeks of January 2020, companies that had mapped their supply chain already knew which parts and raw materials were from the Wuhan and Hubei regions and, therefore, could bypass the frantic search for ; information and speed up their responses. .

The coronavirus epidemic teaches us once again that a robust supplier monitoring system that maps dependencies of sublevels is a basic requirement for professionals in the supply and supply chain. Today’s supply.