It’s a surreal scene that’s played out on national news outlets and social media feeds for days now: stores across the country with aisles emptied of toilet paper, hand sanitizer, cleaning wipes and food staples. The lack of these consumer essentials may be the most conspicuous sign of our supply chain disruption. But COVID-19’s impact goes far beyond consumer demand spikes, impacting component manufacturing, freight shipment and parts assembly. According to a survey conducted in early March by the Institute for Supply Chain Management, 75% of companies are reporting supply chain disruptions due to coronavirus, a figure expected to increase in the coming weeks.
How COVID-19 Impacts Global Supply Chains
Over the last decade, companies have adopted cost-cutting measures such as lean manufacturing, offshoring and outsourcing, designed to ensure “just in time” delivery. As a result, companies may only have 15 to 30 days worth of inventory on hand at any given moment. Most production takes place in China, and shipping by sea to either the United States or Europe averages 30 days. With Chinese factories shut down in January, the lack of component parts began impacting supply chains in mid-February. Fiat Chrysler Automobiles, for example, had to halt production starting February 14 at one of its factories because the company couldn’t obtain critical parts from China.
Even if component parts are available, moving goods within and out of China is challenging. A shortage of air and ocean freight options means goods are stuck at origin points or at ports, waiting for shipment. The Institute for Supply Chain Management survey found that nearly half of companies are experiencing delays moving goods within China and loading goods at ports.
Looking Forward: Building Resilient Supply Chains
With COVID-19 cases currently rising in the US and Europe, we have a long road ahead to recovery. As companies consider strategies for mitigating supply chain disruption now and into the future, these are three places to start:
1. Supply Chain Optimization with Supplier Diversification and Digital Twinning.
Companies are evaluating their overall sourcing strategy and supply chain network design. Organizations that diversified their supplier base in response to recent tariffs or preparation for extreme weather events are finding they are better equipped to withstand the current COVID-19 disruptions. Greater choice within the supply chain can mean greater agility, in some cases enabling continued production at reduced levels, rather than a complete shutdown.
Diversification considerations for supply chain optimization include location, pricing and the range of available component parts. For example, some American companies are considering increased component production in the US and Mexico – as opposed to just component assembly – shrinking geographic distance and minimizing time lost to freight disruption.
Forward-thinking companies have also begun using technology like digital twinning to support scenario planning and prepare “just in case” strategies. Creative leadership is helping companies utilize resources in new ways, minimizing the impact of disruption and protecting the bottom line.
2. Integrating Enterprise Resource Planning (ERP) with Advanced Analytics.
If your company has not done so already, it’s time to get serious about making these technical upgrades. We’re moving towards a future where smart supply chains will be able to act on their own without human oversight. To get there, companies need to lay the technical groundwork. This starts with integrating enterprise resource planning, analytics and customer relationship management. Doing so helps companies move towards real-time reporting and decision-making based on the actual movement of products/inventory, unlocking operational efficiencies.
3. Reassess Talent Needs.
Currently, some of the most in-demand hires are leaders who have not only a strong technical background but also experience overseeing change management. At Lucas Group, we can help your organization find talent who is excited to tackle challenges like increased digitization or advanced analytic integration, and has a robust understanding of how modern supply chains work.
Our team can also help your organization assess which capabilities should be brought in house to bolster your company’s core competencies, versus which capabilities can be sourced from an external provider or partner. With a broad market view, we provide consultative advice that guides your company through an internal needs assessment, ensuring you’re focused on hiring the right leaders from day one.
COVID-19 is not the first time we’ve grappled with significant supply chain disruption and it won’t be the last. Now, more than ever, the right talent can set companies up for long-term success in our complex global marketplace.