Worley Blog

CORONA VIRUS AND YOUR SUPPLY CHAIN

Posted on: March 9th, 2020 by Clifford F. Lynch

 

Hundreds of thousands of words have been written about the outbreak of Covid-19, commonly known as the Corona Virus. Some of the information has been accurate. Some not so much so. The problem is sorting through it all and attempting to learn how we can deal with it, both personally and professionally. Hopefully, this will help a little. Known to have started in Wuhan, China, as this is being written, there have been 88,443 cases worldwide, resulting in 3041 deaths. There have been 100 known cases in the U.S. with 9 deaths. As of today, there are reported cases on every continent but Antarctica.

Wuhan has pretty much shut down which is doubly critical since it is one of China’s major industrial cities. It is home to the Chinese steel industry, and according to Supply Chain Management Review, is a manufacturing center for Nissan, Honda, GM, IBM, Honeywell, Walmart, and other major firms. The impact of the corona virus is being felt not only in China, but in the many countries to which they supply parts and finished products or from which they import goods for Chinese use. The disease not only is taking a human toll, but an economic one as well. The Organization for Economic Cooperation and Development (OECD) has said that “the world economy is the worst since the 2009 financial crisis.” The impact is being felt all over the world, affecting sources of raw materials and the sale of finished products.

The Center for Disease Control (CDC) is working around the clock to find adequate testing, prevention, and treatment methods; and in an attempt to jump-start the economy, the Federal Reserve has cut interest rates by one half of one percent.  The corona virus has descended upon us in an election year; and the government’s handling of the outbreak already has become political fodder for the presidential candidates. To make matters worse, as is usually the case in time of trouble, some firms and individuals are trying to profit from the crisis. For example, although the CDC has said that healthy people should not wear masks, they are in short supply, with some purchasers paying exorbitant prices.

But what can managers do to help mitigate the negative effect on their supply chains? This is a new kind of problem. Rarely have supply chains been affected by disease or health issues. According to Supply Chain Insights, LLC, the three most impactful events between 2013 1nd 2018 were, in order of importance, cyber attacks and hacking, 2015-2017 West Coast port slowdown, and Hurricane Harvey in 2017.  Once again, we find ourselves saying, “I wish we had done this.”   If the economic issues continue, some of our firms’ actions may be above our pay grade, but there are certain steps we all can take.

First, take care of your employees, to the extent that you can. Send sick people home. If responsibilities permit, let as many as possible work at home, at least part of the week. Keep plenty of hand sanitizer available, and keep your workspace as clean and sanitary as you can. Minimize travel, especially to foreign countries. One firm with which I am familiar, requires employees traveling to certain countries to enter a 15-day quarantine immediately upon their return.

If you have purchasing responsibility, develop a network of alternate suppliers and identify in advance, carriers to be utilized from these sites. If major manufacturing decisions are required, work with others in your firm to develop the necessary costs and service data from alternate locations. Since we cannot predict where disasters may occur, both second and third tier networks should be developed, with cost and service impacts identified. Whatever you do, move away from single-source strategies. Lora Cecere, founder of Supply Chain Insights says, “only one-third of companies have ‘what-if’ analysis and teams capable of modeling the impact. Two thirds of companies do not know the locations of second-tier suppliers.”  If there is such a void in your company, there may be a chance for you to step in and take a leadership role in correcting the deficiency.

Review your inventory management policies. For the past few years, we have focused on reducing inventory levels to accommodate just-in-time programs and reduce carrying costs. This may be a good time to take another look at how out of stock conditions affect the bottom line of your company.

Analyze your contracts with suppliers and logistics service providers, and make sure that “force majeure” clauses are adequate for your needs. (A force majeure clause is a contract provision that allows one party to suspend or terminate the performance of its obligations when certain circumstances beyond their control arise.)     Lexology suggests that we need to determine if we are at risk or stand to benefit due to the wording of these clauses.

Finally, from a Forbes article by Dave Evans…….” Build a self-driving supply chain. Technologies like artificial intelligence, machine learning, blockchain, digital supply chain, and manufacturing platforms are all allowing companies to embrace automated supply chains that can move on-demand to prevent cost overruns, delays, and catastrophic supply shortages.”  This is a tall order, but wouldn’t it be nice if some of the complex decisions were made for us.

You will realize that many of these suggestions are akin to locking the barn after the horse has been stolen. The corona virus crisis will end; and we all pray it will end sooner rather than later. But there will be other disruptions, and we need to learn from them and be more ready for the next one. As I mentioned earlier, if your company is not adequately prepared for crises, this would be an excellent time to assert yourself into a leadership role in filling the gap.