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Supply Chain Management in Times of Crisis

Written by Jason Jaensch Procurement Manager at Quickstep

Supply Chain interruptions are occurrences that organisations, and their teams, regularly prepare for.  Risk analysis is performed on both the Supplier base and materials, decisions are made to minimise impact on the daily operations, and plans are put together to minimise this risk.

In mature supply chains these commonly taught, and used, practices have proven predominately successful. Organisations have been able to isolate this evaluation and build containment plans around the individual areas of focus. When this risk becomes evident, the plan is enacted, and a successful outcome for the organisation can be reached.

COVID-19 has presented challenges to a number of Supply Chain networks at a rate, scope, and duration not expected or experienced in recent times. Common risk analysis focuses on the individual area of the Supply Chain, the Supplier, the Raw Material availability, or the transport sector. COVID-19 has rapidly caused challenges across all of these sectors, all peaking at the same time. Further complicating these challenges, is the unknown duration of this global pandemic.

Has COVID-19 challenged this traditional risk management thinking? Economic theory teaches us that goods and services are produced where it is the most cost effective to do so.  As the world becomes smaller with the extent of Global trade, driven by this natural tendency of economics, greater number of organisations are sourcing similar products from the same regions and manufacturers.

What we have seen from COVID-19 is the once small risk, possibly considered non-essential, items have stopped production. All types of consumables and PPE could not be sourced through the regular supply chain, putting organisations production at risk. Panic buying across Australia saw shortages across many consumer good sectors. Shortages, in the likes of toilet paper, put some organisations on the verge of closure as they could not provide bathroom amenities to staff.

So what have we learnt from this crisis, and what do we need to put in place in the future?

  • Communication is Vital

Once a Supply Chain crisis begins we must be in contact with our affected suppliers on a higher frequency than before. Putting these regular communication forums in place helps keep the organisations needs front of mind in the supplier base. Rather than wait for updates to arrive in your Inbox it pushes the Supplier to bring information to the forum.  Having updates as soon as possible, and potentially before other organisations, allows us to act first.

  • Relationships are Key

For communication forums to be successful in a time of crisis a pre-existing relationship is key. Many organisations will contact Suppliers for updates, being the Customer that is regularly talking to the Supplier compared to their other customers puts the organisation at an advantage. It is a natural tendency to talk to those we feel some sort of connection to.

  • Look at the Supplier’s Supplier Base

We must ask our Suppliers about their Supplier base. What challenges are deeper in the Supply Chain that we would not normally see? Having this information drives decisions on sourcing requirements to be ahead of other organisations that require the same items.

  • Low Value Inventory vs Cash Flow

Organisations focusing on the total inventory number are missing the opportunity to reduce risk in these large scale crisis. Weeks coverage of raw material needs to be matched with weeks cover of supporting/consumable type inventory.  Having these two types balanced allows the organisation to have a clear view of production coverage.

  • Fast Decisions Reduce Risk

Once a Supply Chain crisis begins we must be able to act quickly.  What plan do we put in place; what do we do differently to avoid the impact; what will these options cost? Most Supply Chains know their demand and cost of key raw material inputs. In many cases, this is driven by ERP systems, which can gather information in a very short time. What is not normally as readily available is consumable base items. Having a method to forecast and cost this is essential. It allows a decision on how much the business can afford to source, how much the organisation should secure, and track when this has been completed.

When a Supply Chain interruption occurs in a specific commodity, or with a specific Supplier, organisations can allocate resources to resolve the problem, assigning larger internal resources to a smaller focus area. In large scale crisis, like we have seen with COVID-19, it has highlighted the need to have plans in place to give the organisation a buffer across all requirements; no matter how small the item is. If it can stop production, it must be planned for.