How COVID-19 Affects Supply Chains
Supply chain risks are a constant concern for many companies, and recent events have caused significant disruptions worth examining. Whether the blocking of the Suez Canal by a jammed ship, the unprecedented pandemic of COVID-19, or massive cybersecurity attacks, recent events have reminded us of how vital supply chain risk management really is.
Manufacturing facilities, governments, and shipping companies have worked tirelessly to try and address sick employees, late shipping arrivals, and other complex problems that have caused wide-scale interruptions. Despite this, the Interos Annual Global Supply Chain Report found that global chain disruptions such as these cost large companies an average of $184 million a year.
We usually assume that large-scale disruptions in the supply chain are due to natural disasters such as hurricanes, tsunamis, floods, storms, and earthquakes. 2020 and 2021 reminded us that our scope must be broader when considering risk management strategies.
Risk assessment must be more robust to include any number of external risks, whether pandemics, socio political issues, or climate change. Supply chain managers can gain valuable insights by examining analytics related to the COVID-19 supply chain disruption and understanding what steps could have prevented vulnerabilities and failures.
How COVID-19 has affected supply chains
COVID-19 has created unprecedented disruptions up and down manufacturing supply chains and production facilities. The illness of personnel, new safety regulations, and procurement problems have caused significant delays. When considering the risk mitigation strategies used and how the pandemic has affected supply, there are a handful of components to consider:
Financial risks
The pandemic caused companies to go into panic mode over financial damage mitigation. Not only were companies attempting to protect their businesses from financial risks by shifting their suppliers and practices, but other pieces of the supply chain were affected by poor financial situations as well. In worst-case scenarios, parts of the supply chain were broken entirely by asset freezes or bankruptcies.
Socio political issues
Trade wars, tariffs, and Europe’s Brexit all were causing issues simultaneously as COVID-19 was occurring. Some of these issues were exaggerated by the pandemic and poor global relationships, while other elements were in play before COVID-19. These trade issues caused logistical nightmares, supply risks, and slowed the flow of products. For example, the US tariffs on Chinese-made healthcare products and PPE caused immediate demand risks going into COVID-19.
Unpredictable human behavior risk
Panic-buying during the pandemic reared its head in a way that the market hasn’t seen in a long time. In March 2020, the online sales of toilet paper rose 207%, while the online sales of hand sanitizer and wipes grew 5678%. In stores around the country, the meager couple of weeks inventory usually kept in stock was undoubtedly not enough for customer demand.
Raw material shortages
During the beginning of the pandemic, many raw material manufacturers saw declines in demand and had to ramp down to reduce their risk exposure. Lower supply meant prices grew, and raw materials such as microchips became increasingly challenging to acquire. Material shortages hit specific markets very hard, such as the technology and automotive sectors. We continue even a year later to see issues in this area with things like wood.
Safety recalls
Food packing safety was a huge focus during the COVID-19 pandemic, with multiple meatpacking facilities having to shutter entirely due to outbreaks. On top of illness issues, reputational risk was on the line as it was unknown if the virus spread through food sources. Beyond food, the logistics of quality issues during the pandemic were a nightmare, as car manufacturers and other companies struggled to get information to consumers.
Economic uncertainty
According to a McKinsey & Company study, economic uncertainty was at its highest level in 35 years during COVID-19. As over 110 million people lost their jobs during the pandemic, people were scared for their financial security and safety. Luxury items and other sectors saw dramatic dips in purchasing as many people decided to save money in case they were laid off or got ill.
Demand change
The demand for certain products and services changed the moment that lockdown occurred. Most obviously, the events and restaurant industry hit a stand-still as they attempted to find ways to adapt to dramatically decreased businesses. As the pandemic raged on, many companies in these sectors closed, while others that targeted remote workers thrived.
Staffing & resource challenges
Illness, financial insecurity, and layoffs led to significant staffing issues for companies. Many businesses had to cut as many workers as possible while still staying operational. Some industries, such as fast food, saw workers quitting due to working conditions and new opportunities.
Compliance risks
COVID-19 brought new compliance standards for companies to uphold. Offices needed to keep employees 6 feet apart, something nearly impossible in specific layouts. PPE and proper cleaning were required, while simultaneously supply chain issues were making these items hard to acquire.
How businesses can adapt to a post-pandemic world
COVID-19 showed us how the supply chain could easily fall out of place due to several different issues. Luckily, there are ways your company can become resilient against external and internal supply chain risks. Through robust planning and a risk-mitigation mindset, you can ensure your company will be able to better roll with any supply chain-related punches.
Educate employees on COVID-19 symptoms and prevention
While the pandemic is slowing due to the rollout of vaccines, it isn’t entirely over. It is crucial to figure out how to best disseminate information to your employees regarding COVID-19 prevention and mitigation with variants still prominent. By implementing a tactic for keeping employees informed directly and consistently, you can also create a lifeline for future communications emergencies.
Reinforce screening protocols
Having screening protocols in place can prevent the office-wide spread of disease. Whether temperature check-ins when entering the office or at-home daily monitoring, creating robust screening protocols is the first defense against disease. By protecting against an outbreak issue before it occurs, you can save your company from a large-scale employee illness problem.
Prepare for increased absenteeism
In the case that screening fails to catch a sick employee, it is vital to prepare for the possibility of increased absenteeism. If much of your workforce is ill, what steps could you take to protect your company’s bottom line? Consider how to create safeguards so that these employees will get the time away they need in case of illness while not putting the company’s financial wellbeing in danger.
Restrict non-essential travel and promote flexible working arrangements
Non-essential travel can be a vector for COVID-19 spread and an unnecessary drain on company resources. Discontinue unneeded company-related travel, and encourage employees to stay home while the outbreak subsides. Zoom and Teams have become mainstream during the pandemic, making remote working and remote meetings more viable.
Allowing employees to remote work rather than traveling to conferences or even traveling into the office can often protect them and your teams from illness while also making your teams infinitely more flexible to other unexpected risks.
Align IT systems and support to evolving work requirements
For remote and flexible work options to be successful, your IT team must facilitate safety precautions, best practices, and software options for employees to use. Encourage your technology team to find more ways to support flexible work within your different business teams. Use new rollouts and practices as a learning opportunity to discover more ways to create robust systems that can change on the fly in case of a future emergency.
Prepare succession plans for key executive positions
While grim, it is crucial to have succession plants for your top-level positions, especially during a deadly pandemic. Having lines of succession in place before needing to pull from them can prevent significant issues internally while scrambling to make a replacement decision. Making succession plans for critical positions is a great idea not only during COVID-19 but to prevent problems anytime due to sudden loss of staff.
Focus on cash flow
Create robust and multi-layered plants to protect your company’s cash flow in the case of multiple supply chain risks, pandemic-related problems, or other emergencies. Ways to protect your cash flow include keeping extra buffer inventory in the case of a supply chain disruption or creating redundancies within your workplace for unexpected absences. By ensuring that your cash flow won’t dry up, you can protect both your business and your employee’s livelihoods.
Evaluate alternative outbound logistics options and secure capacity
If outbound logistics and supply become disrupted, it is essential to have other options in place. Whether a third-party logistics company or a robust list of alternative supply options, having backups in place can help you navigate supply uncertainty. Along with this, securing more inventory capacity can help your company have more time to execute your backup plans.
Conduct global scenario planning
There are an endless amount of global disasters that may occur and disrupt your supply chain. While it is unrealistic to think that you will protect your company against all possible emergency scenarios, you can become more flexible to disaster by considering various global problems. From sociopolitical issues to natural disasters, coming up with backup plans for different cases can help your company better adapt to any international crisis.
Conclusion
COVID-19 has provided us with experience and knowledge to help us tackle future global supply chain disasters. While navigating the pandemic has been challenging for many, our companies have become more resilient and strong as we have found ways to overcome these hurdles.
As the dust is slowly settling, it is crucial to continue the momentum and create robust plans for your company in case of future global events. By planning and coming up with playbooks, you can make your company more flexible in the face of complex challenges and also make your employees feel more safe and secure with your capabilities.
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Maggie M. Barnett, Esq., COO
