Coronavirus: What You Can Still Do to Harden Your Supply Chain

At The Supply Chain Engineer™, we are keeping a close eye on the Coronavirus, or COVID-19, and the implications it has for your business, particularly your supply chain management.  We would like to share with you our insights into how we see this unfolding in the near future as well as things you can do now to harden your supply chain and make it more resilient to this and future disruptions

Anticipated Distribution and Business Effect

There remains much uncertainty around this outbreak and there are several potential outcomes depending on the virus’s seasonality and other variables. What follows is the scenario we expect will play out, although it represents only one among many possible results.  Based on several reputable and well-informed analyses, we believe that the US will likely experience between 50,000 and 500,000 cases nationwide, with the majority of these occurring in three to five major cities and several other cities reporting a few dozen cases each.  Personal, business, and governmental mitigation behaviors will likely extend for around six-weeks in the harder hit metropolitan areas and three or four-weeks in outlying areas.  We anticipate that the virus will follow the typical coronavirus pattern of seasonality in humans and largely dissipate on its own as the seasons warm.

The financial impacts of COVID-19 will result in a global slowdown, although not a recession.  In the US, we expect that the economy will still grow, but at around 1% to 1 ½% – about half of last year’s rate.  This will have the greatest impact on small- to mid-sized companies.  Aviation, hospitality, tourism, and related services industries will be hardest hit with consolidations likely to increase dramatically.  As shown below, the impact will vary across industries.

Supply Chain impacts have so far been due to Chinese shutdowns. Presently, outside of Hubei, most of China has returned to more than 90% production. Hubei will likely not return to that level until sometime in April.  Trucking capacity remains at only around 80%, causing an eight to 10-day delay getting products to port for overseas shipping.

This all may result in inventory allocations by key distributors within the United States as their Chinese suppliers ramp up production and attempt to manage their own inventory whiplash.  At the same time, consumer demand shocks will continue.  Items seen as consumer necessities – non-perishable food products, paper products, bottled water, sanitizers, and antibacterial cleaners – will continue to spike as consumers in areas with outbreaks attempt to prepare for self-quarantine.  This transient demand shock will give way to a drop in demand as consumers find themselves temporarily overstocked.

Overall, we expect COVID-19 to result in an additional 10- to 20 weeks of supply chain disruption before the recovery is complete. This means we will continue to feel the effects through mid-May to July.

How to Harden Your Supply Chain Now

Even though it may be too late to anticipate the outbreak, there is still time to mitigate the impact of COVID-19 and to prepare your supply chain to withstand future disruptions.

1. Protect your personnel – This disruption will pass.  In order to rebound quickly from any breach of business continuity, you must keep your assets and personnel safe so you can return to full capacity as quickly as possible.  The Association for Supply Chain Management recommends, “Follow the Centers for Disease Control and Prevention guidelines. Give your workforce a constant, calm, flow of reliable information. Restricted travel policies are a beginning. Also implement screening protocols, increase workforce hygiene standards, and promote telecommuting and other flexible arrangements. Encourage people with preexisting conditions, who are more susceptible to the virus, to self-declare. Then, proactively shift them to remote work.”
2. Know your stock coverage – It is critical to know how many days of coverage you have of key materials so you can prioritize the items for which you need to find mitigation solutions.
3. Keep your suppliers in the loop – In times of crisis you cannot over-communicate with your principal suppliers.  This will happen automatically if you have digitized your supply chain, giving you the added advantage of speed.  If not, your buyers and commodity managers need to fight for their attention. It is particularly important to keep in nearly daily communication with those suppliers in affected areas in order to stay on top of potential supply shortages.
4. Identify alternate suppliers, materials, and resources – Once you have identified your material mitigation priorities and coordinated with current suppliers, you will have a concise “shortlist” of essential items that you need to re-source.  Look for alternate suppliers and materials.  If needed, consider re-engineering the parts to make them easier to source.
5. Map your Supply Chain – You know where your tier-one suppliers are and if they are in affected areas, but what about your tier-two or tier-three suppliers?  Are they directly impacted by the disruption?  Are they financially able to withstand the impact (65% of smaller suppliers in China have 2 months cash)?  By mapping your supply chain, you will know where your risks are and can receive near-real-time warnings. 
6. Digitize your Supply Chain – Digitizing your supply chain not only reduces transactional costs, it allows you to buffer risk with less expense.  Further, digitization automates many functions, reducing errors and increasing speed.  And in a crisis, speed is life.

Contact Carl@TheSupplyChainEngineer.com today to discuss how we can help you mitigate your COVID-19 risks and harden your supply chain to increase resilience against future disruptions.