MEMORIES FADE QUICKLY AFTER MAJOR DISRUPTIONS LIKE COVID-19, AS COMPANIES ONCE AGAIN FOCUS ON SHORT-TERM APPROACHES TO THEIR SUPPLY CHAIN

May 5, 2020

COVID-19 has disrupted global supply chains across industries and market segments into a state of uncertainty. Its disruption is unprecedented in recent history. One thing that has become painfully clear is just how unprepared companies and their #supplychains are to respond to the current global pandemic.

As consumers we are all aware that supply is not keeping pace with demand. There are many reasons for this, almost all of them avoidable, but most require capital and investment.

Many observers are calling COVID-19 a “black swan event,” which refers to an event so rare and unusual it cannot be anticipated. There have been numerous, though less global, events with supply chain impacts, such as the Fukushima nuclear reactor meltdown and numerous natural disasters form hurricanes to earthquakes, etc.  Supply chain interruptions have become seemingly commonplace in recent years.  Most often, including the current #COVID-19 Pandemic, contain lessons to help companies and policymakers — better prepare for the next inevitable “black swan,” if they are willing to take a more strategic global approach.

To profitably meet customer demand, companies have designed a more streamlined procurement approach of low-cost supply chains, drastically cutting inventory and concentrating purchasing with fewer suppliers.  Most often selecting suppliers located in distant, low-cost countries.  Limiting inventory safeguards, local suppliers, and back-up suppliers has made supply chains fragile and increasingly high risk!

This cost-driven management approach certainly makes sense, most of the time. In line with lean efficient organizational strategies, companies have purposefully designed their supply chains to follow principles like Toyota, eliminating any waste that is non-essential for meeting current needs.

How can a company justify investing heavily in preparing for unknown events that may or may not happen?  To date, it appears memories fade quickly after major supply chain disruptions, as companies once again focus on short-term cost cutting. In reality though, the only thing unknown about the next black swan event is when, rather than if it will happen.

Supply chain experts and consultants have long called for companies to pay greater attention to their supply chains, as well as their market environment, by investing in greater visibility and mapping to understand what companies comprise their supply chain and where those secondary suppliers are located.

The complexity we have today makes mapping more costly and time consuming, though it is increasing critical to continuous organizations operations in the future.

As companies begin to survey the ongoing damage caused by the coronavirus outbreak, one thing becomes apparent is that not all product categories are equally affected. For instance, persistent shortages of personal protective equipment (PPE) are not only a retail stock-out issue but a public health issue, as healthcare providers and other companies that are still operating struggle to protect their frontline workforce.

Creating supply chain resilience requires an investment in understanding your supply chain and creating contingency plans. But it’s important to also recognize that shortages can certainly be caused by supply disruptions and unexpected demand surges as well.

Demand surges for a wide array of product in varied product categories due to the current pandemic are driven by a combination of new consumption patterns.  Thus, supply chain visibility and analysis must be adapted to integrate both supply and demand: Under drastic unpredicted events, traditional understanding of supply and demand can become entirely upended. If this occurs, ensuring continued operations become vital.

Most important, companies must also understand that in their quest to achieve lower costs, streamlined management strategies and approaches can become too lean.  Amazon discovered this when it implemented order-to-shelf processes inside Wholefoods post-acquisition, and experienced widespread stock-outs and irate customers.

Hopefully companies will implement new supply chain program strategies for the need for increased supply chain visibility, backup suppliers and redundancies.  Equally important is that companies must not allow complacency to once again set in.  The standard management principles of just in time manufacturing and minimal inventory reinforces the idea that that safeguards of extra inventory, extra capacity are too costly.  It is time for companies to rethink this mindset.

In this time of unprecedented strain on companies supply chains, organizations now need to reassess their supplier relationships and evaluate new potential vendors!

Modevity Investigative Due Diligence Services provide actionable intelligence for risk avoidance in detailed reports that assist companies in assessing their supply chain.

Modevity supply chain audit services can assist you in protecting your company’s financial position, its operations, and its reputation going forward. Our staff of veteran investigators can provide timely and actionable intelligence on your entire supply chain. Allowing you to get on with what is important.

#SupplyChain, #ComplianceRisk, #Covid-19, #CommercialIntelligence, #SupplyChainAudit, #InvestigativeDueDiligence

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Date:

May 5, 2020