Supply Chain Disruptions + Business Continuity During COVID-19

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Apr 9, 2020

The coronavirus has dramatically disrupted global supply chains. Healthcare facilities in the U.S. have quickly realized that they don’t have enough personal protective equipment, which is manufactured in China and other countries also impacted by the coronavirus. COVID-19 is expected to disrupt supply chains for computers, electronics, and vehicles among industrialized nations, including China’s top export partners of the United States, Japan, Germany and South Korea. In a survey from the Institute for Supply Management, nearly 75 percent of companies report some continuity of supply chain disruption related to coronavirus-related transportation restrictions. Depending on how the virus evolves, it could cause significant global disruption to manufacturing and services.

Tactical Response to a Supply Chain Disruption During COVID-19

For companies that have not considered (or included in their Business Continuity Plan) a regional or national incident that disrupts their supply chain, the organization’s survival may depend on their ability to rapidly understand which operations are critical and identify the supply chain dependencies. From there, they can rapidly develop effective supply chain solutions. Critical actions to consider include the following:

  • Rapidly evaluate what products are in demand and are both feasible to produce and deliver
  • Confirm the supply chain’s ability to deliver necessary products
    • Contact the primary and alternate vendors related to the desired products / services to understand their ability to supply the required goods and services
    • Contract for additional capacity of feed stock, storage and distribution capabilities, as needed
  • Confirm, develop and execute legal provisions for shutting down unnecessary items in the supply pipeline (staff, services, products)
  • Manage cash flow
    • Negotiate new contracts to extend payment delivery
    • Review opportunities for easing customer payment due dates and offer discounts for early payment
  • Improvise new methods for acquiring critical goods or services
    • Contact competitors to review opportunities to acquire or offer excess inventory, services or storage capacity
    • Re-visit local sourcing options that may have previously been passed over due to pricing or capacity issues
    • Reconsider previous procurement constraints versus the current environment (economic order quantities, just-in-time delivery, etc.)
    • Assess and distribute critical inventory items from other company sites
  • Re-visit the procurement agreement process
    • Streamline the pro-forma terms and conditions
    • Fast track the review process
    • Ensure the delegation of financial authority levels reflect the change in operating needs and contract costs

How Can a Business Continuity Plan Help?

The effects of the global pandemic are undeniable — ensuring that demand can be met with supply continuity is challenging. Supply chain continuity efforts are important, as more companies depend on global suppliers from China or other areas impacted by COVID-19. This major supply disruption emphasizes the need to develop or revisit business continuity plans (BCPs) that identify primary and secondary suppliers and alternate resources. By identifying and contracting with vendors and alternate suppliers prior to an incident, where possible, a company can improve its ability to quickly and successfully respond to disruptions.

Factors to consider in the identification of critical suppliers are complex and extend well beyond a simple first glance analysis. Suppliers of specific products and material goods critical to business operations is only the first tier of analyzing supply chain dependencies. The second tier of critical suppliers that is often overlooked or left unaddressed are suppliers in the critical infrastructure category — public services, utilities, and regional infrastructure services. Examples include:

  • Healthcare
  • Public transportation
  • Police, fire and emergency medical services
  • Electrical power
  • Natural gas
  • Water
  • Fuel
  • Telecommunications / Internet service providers
  • Transportation (air, sea and land)
  • Staffing
  • Facilities
  • Waste management

The purpose of BCPs are to minimize the impact of a business disruption by:

  • Identifying critical operations
  • Identifying operating risks
  • Identifying key resources needed to continue operations
  • Developing mitigation projects and action plans.

BCPs minimize incident impact and establish interim operating levels and methods for restoring “business-as-usual” operating levels. BCPs address the temporary or permanent loss of critical staff, facilities and equipment, information technology (applications, hardware and infrastructure) and supply chain. Focusing on supply chain resilience in preparing for a pandemic is a high priority considering the prevalence of outsourcing staffing, IT delivery, facilities and equipment.

Looking Ahead: Resilience and Business Continuity

As seen through the ongoing pandemic, organizations need to continually evaluate the impact of new threats to their existing business and their supply chain business continuity plan response. Identifying business interruption risks, quantifying the potential impacts to your company, developing mitigation strategies and preplanning prior to a situation such as COVID-19 are the critical steps to managing risk. By taking steps to stabilize supply chain operations and implementing business continuity plans, companies will be best positioned to meet the challenges ahead and succeed in the long run.