Supply Chain Risk Management - COVID 19
The coronavirus is now officially an epidemic.
It’s now been around 10 weeks since China first reported the outbreak of the virus to the World Health Organisation. There are currently more than 126,000 cases worldwide and the virus is showing no visible signs of slowing. The United States has now halted travel from Europe to the US (with the exception of the United Kingdom for now) in a bid to combat the spread of the coronavirus. In this article, Supply Chain Digital explores McKinsey & Company’s “Implications for business” report and looks at the supply chain challenges companies face amidst the spread of the deadly virus.
During the opening weeks of the outbreak, there has been major concerns about the effect on supply chains that start or go through China. There have been many factory shutdowns and disruptions have been felt all over the supply chain during Q1. Trucking capacity to ship goods from factories to ports is at around 60-80% of normal capacity, with goods facing delays of around 8-10 days on their journey to ports. There remains an uncertainty around customer demand. Customers that have pre-booked logistics capacity may not be able to use it, while customers may compete for prioritisation in receiving a factory’s output, as well as the unpredictability of the timing and extent of demand rebound could cause confusing signals for a number of weeks.
To respond to the virus, McKinsey and Company has listed seven guidelines that companies should heed:
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Protect your employees - Business as usual isn’t an option. Companies can find ways to support employees that are consistent with the most conservative guidelines that might apply and has trigger points for policy changes. Some organisations are actively benchmarking their efforts against others to determine the right policies and level of support for their people.
Set up a cross-functional COVID-19 response team - Businesses should nominate a direct report of the CEO to head up the effort and appoint members from all functions to assist. Team members should step out of their everyday roles and dedicate most of their time to virus response.
Ensure that liquidity is sufficient to weather the storm - Organisations must devise scenarios tailored to each individual context. This is because important variables will affect revenue and cost in different ways .
Stabilise the supply chain - Companies must work out the extent and likely duration of their supply chain exposure that are experiencing transmission, such as tier 1, 2 and 3 suppliers and inventory levels.
Stay close to your customers - Organisations that invest in their core customer segments and anticipate their behaviours are more likely to succeed. Companies should invest in online shopping for a range of products as part of a drive for omnichannel distribution
Practice the plan - Lots of top teams don’t understand the time required in working out the plan for disruptions. Companies should use tabletop simulations to define and verify their activation protocols for different phases of response.
Demonstrate purpose - Companies are only as robust as the communities they are part of. They should work out how to play their part and support response efforts, such as providing money, equipment and expertise.
Interested in reading more? Check out the full McKinsey and Company report here!
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