Strengthening the chain: COVID-19 and supply risk
It was just one of many anecdotes swirling at the beginning of the crisis: by the end of March 2020 COVID-19 had already caused a shortage of pasta in the UK. The real story was supply chain weakness. It turned out that one major supermarket chain relied on a single supplier in hard-hit northern Italy for all its pasta products. In a situation where panic drives further panic, such shortages were apt to get worse.
COVID-19 has changed the way many businesses think about their supply chains. It presents some of the most significant and unusual supply chain risks to critical infrastructure in a generation and conventional approaches to supply chain risk management need to adapt rapidly. The factors that affect the supply market have now become more complex, as has the risk modelling required to obtain early warning of future shocks.
New forms of the unpredictable
We have learned that there are new risks to plan and prepare for. Traditional risks like rapidly changing market conditions, suppliers’ capacity and capability, their financial integrity and operational performance are all well understood, with signs of potential failure familiar enough to predict and mitigate. But a pandemic deepens the level of risk considerably. Is the workforce well enough? Are the logistics and transport still operational? Can your suppliers restock on materials and resources? Has a sudden policy change from government rendered the whole operational impossible?
Before the coronavirus outbreak we tended to believe, rationally enough, that preparation should always have limits. Why over-invest in alternative supplies for unlikely eventualities if you’re also trying to run an efficient and cost-effective business? Once more: the virus up-ends our reasoning.
As Satvinder Sandhu, at Intel recently observed, “Normally if you have a disaster/serious accident/incident in one country or location and if you have a fault tolerance network you can switch supply/manufacturing to a second location. Rarely do you see your whole business impacted at the same time.” Sandhu’s logic will resonate with many in other sectors, and he also focuses on the importance of a widespread health risk facing the people who are ultimately central to successful supply chain operations. “everyone in the world is facing the same constraints and health risks – switching facility to another country doesn’t necessarily help.”
The route to resilience
Of course, Covid-19 isn’t the only threat supply chains face. The US-China trade war rumbles on. Brexit negotiations have slowed, and the implications for cross-border trade remain unknown. Climate change continues to make its presence felt in the form of extreme weather events. We know there’s an appetite for ‘better’, but a step change is clearly required – so what’s involved?
Given the increasingly volatile operational environment in which organisations find themselves, traditional risk management isn’t enough: we need to build resilience. This will provide both mitigation for the risks you can identify today, but also the adaptability required to thrive in an unpredictable and changing world.
It means reorganising and rethinking, becoming more adaptive, agile, robust and competitive. Firstly, a robust business case must be defined. That means exploring in detail how value is produced within your organisation, mapping how your existing supply chain contributes to this process. From here it’s vital to identify the key shocks, stresses, vulnerabilities that you face and understand the most critical parts of your supply chain system. Firstly, a robust business case must be defined. Every industry is different, and every industry is always changing – if this year has proven anything it’s that this task needs more prominence in boardrooms worldwide.
Finding your organisational resilience framework
We use an organisational resilience framework to grade organisations in this way, revealing unforeseen risks, potential gaps in supply, ultimately building in more resilience to the operation overall. Best of all, this process maps supply to risk to value in a way that doesn’t just build a business case for change – it also sharpens overall performance and control of costs.
This is much-needed analysis in a globalised economy where both strengths and vulnerabilities have never been more interconnected. And for the supply chain sector organisations, this is too important a crisis to waste.