COVID -19, lead to Supply-Chain Disruptions & Blockages that has a Significant Economic Effect, Health, Safety and Social Impacts Globally – like Delivery Delays, Increased Costs, Shortage of Labor, Shortage of Inputs, Shut down of Operations, Health Issues of People, Job Loss, Income for Survival, Increased Inflation etc… etc…. and created a lot many uncertainties.
Supply Chain Management (SCM)
Supply Chain Management (SCM) can be defined as Management of the Supply Chains as an Integrated Process of Acquisition and Management of Flow of Supply of from point of origin to point of consumption and Delivering Further Value Added Output to the Next Level Point of Consumption (like from supplier to manufacturer to wholesaler to retailer and to final consumer) by Balancing Supply and Demand with Optimal Management of Resources with the objective of establishing relationships for Maximizing Value for Mutual Benefits on Economically, Socially and Environmentally Sustainable basis. (As defined by the Author SN Panigrahi in his Article “Value Insights into Supply Chain” Published in Aug’2010 issue of MMR – IIMM)
Supply Chain Management (SCM) involves the Flow of Goods or Services in an efficient manner. It encompasses all the steps involved in procuring raw materials through to the finished goods, in a way that is streamlined and provides value to the customer. Supply Chain Management is an integral part of most businesses and is essential to Organizational success and Customer Satisfaction – Improves the overall Planning and Efficiency of Business Operations, Boosting Customer Service; Reducing Operating Costs; Improve Financial Position; Increases Profit Leverage etc. However, when Disruption happens it Disturbs entire Chain of Activities.
Supply Chain Disruption
A Supply Chain Disruption is any Sudden Change or Crisis – be it Local or Global – that Severely Impact the Supply Chain Activities, Processes and operations. Supply chain disruption is defined as a Major Breakdowns in the Production or Distribution / Supply in a Supply Chain that Challenges your business’s ability to Plan, Source, Make, Deliver and / or Sell Products and other Transactions when an External Force Acts upon beyond the Control of the Business.
Causes of Supply Chain Disruption including events such as Pandemics, Natural Disasters, Product / Process Problems (Quality Issues, M/C Breakdown, Sudden Halting / Fall in Production due to Accidents; Unexpected Surge in Capacity etc.), Drastic Price Fluctuations, Cyber Attacks, Logistic Failures & Delays, Supplier Bottlenecks, Regulatory Issues, Geopolitical Instability (War, Civil Disturbances, Terror Attacks, Strikes etc).
- Examples:
- On March 11, 2011 an earthquake struck off the Pacific coast of Japan causing a tsunami which in turn led to a nuclear disaster at the Fukushima Daiichi Nuclear Power Plant. The catastrophe affected many businesses and the global economy, temporarily shuttering those that reportedly produced 22% of the world’s supply of 300-millimeter silicon wafers (a necessary component in semiconductors) along with 60% of certain necessary auto parts.
- A powerful undersea earthquake that struck off the coast of Sumatra island, Indonesia in 2004, followed by tsunami severely affected the infrastructure in the region, disrupting connectivity and supply chains as well as local production chains.
- In 2015, November, Operations at the Chennai port, especially in the container segment, have been thrown awry by the catastrophic floods that have hit the city, leading to massive disruption of life and property, impacting Business Heavily.
- Natural Disasters in Asia from 1970 to 2019 recorded 3,454 disasters with 975,622 lives lost and $2 trillion reported in economic damages.
- The Ever Given, the massive container ship that was horizontally wedged in the Suez Canal blocking off all traffic for nearly a week in the Month of Mar’2021. In 2020, more than 50 ships per day on average passed through the 120-mile long waterway, accounting for around 12% of global trade.
- Businesses lost an estimated $28 trillion in 2020 due COVID- 19
Supply Chain Disruption may lead to Risks in terms of
- Delivery
- Quality
- Costs
- Supplier & Customer Relationships
These Factors Reflect as Decreased Productivity, Increased Costs, Non-Availability of Inputs & Raw Materials, Delayed Deliveries or Non-Deliveries, Stockouts and Loss of Revenue, as well as Loss of Customer Trust – Rising Customer Dissatisfaction; Cash Flow & Financial Problems, Closure of Businesses or Insolvency, and more and many Economic Fall outs.
Supply Chain Disruption – Types
Supply Chain Disruptions may be Classified in to Following 4 Types :
Disruption Type 1:
Demand Drop (Decreased Demand) : Examples – Airline Industry, Hotel, Tourism industry Completely come to stand still during COVID Lock Down period.
Disruption Type 2:
Demand Surges (Increased demand): Examples – Hospital, Medical & Pharma Industry, Online Food & Grocery Business, Sanitation, Shipping Industry.
As economies restart, the supply chain will be critical to supplying goods and services quickly, safely and securely. This also creates a disruption or distortion like we are facing at present in shipping & logistic crisis. This phenomenon we have seen even in advanced nations. For Example, as on 5th Nov’2021, approximately 70 ships filled with cargo were anchored outside the ports of Los Angeles and Long Beach, which are the points of entry for more than 40 percent of US imports. This backlog is a clear reminder that there aren’t enough workers or facilities to take in all the products that are being shipped to the United States right now. This type of incidences is seen all over world.
Disruption Type 3:
Reduced Productivity : as result of a Labor Shortage, Equipment Shortage, Raw Materials / Input Shortage
Example : Semiconductor Chip Shortage – The semiconductor chip shortage is now expected to cost the global automotive industry $210 billion in revenue in 2021, according to consulting firm AlixPartners. It forecasted that 7.7 million units of production will be lost in 2021.
Disruption Type 4:
Storage and Access Restrictions : Examples – social distancing requirements for employee safety, warehouse shutdowns
We have seen Many Types of Supply Chain Disasters and Disruptions in the Past. They are either confined to a Particular Region, Country or effected for a Shorter Period. However, the COVID-19 pandemic is a peculiar and unusual happening in terms of its geo-graphical scope – Spread Across the Globe; Economic Impact – effected all most all Economic Activities; Duration – become a Long-Term Crisis – No Definite end and Assessable Impact. It has long-lasting & far-reaching implications for how people work and how supply chain’s function. Even natural disasters as devastating as the earthquakes and tsunamis that struck in Indonesia in 2004 and Fukushima, Japan, in 2011 take most nations only a few months to recover from. On the other hand, COVID-19’s impact on global supply chains and economies is expected to be felt for a much longer period.
During the COVID Period All are Not Well – we have seen Stockout Situations, Lead Time Issues, Uncertain Demand & Deliveries – All the Supply Chain Targets & Measures gone awry. Govt. Regulations / Restrictions for Mobility, Lockdowns, Increased border controls and customs regulations result in longer wait times, and lack of capacity for long-haul and last-mile fulfillment etc apart from overall Economic slowdown, Short Supplies, Labor Non-availability, Health Issues and Severe Financial Crisis created extreme challenges – challenges of keeping the businesses running & keep them stable.
Pandemic’s impact on global trade is so devastating that it has exposed the Fragility of the Supply Chain and proved to be a real test of corporate Ingenuity, Resilience and Flexibility to face the Crisis. Covid-19 in India, Impacted on jobs, incomes, inequality, poverty and Loss of Human Capital. There is a pressing need for businesses to build Time Relevant Shot / Long-term Resilience in their value chains for managing future challenges.
Supply Chain Resiliency:
Supply chain resilience is about managing and adapting to the unknown across the whole spectrum of risk – Dynamics, Complexity, and Uncertainty in Supply Chains. It is “the ability of a supply chain to both resist disruptions and recover operational capability after disruptions occur.“
Supply Chain Resiliency has Three Elements :
- Agility – Responsiveness in Uncertainty
- Adaptability – Fitting to Changing Needs
- Alignment – Synergies Between Strategies & Actions
Strategies for Improving Supply Chain Resiliency:
- Mapping your Supply Chain Network with Risk Factors. Conduct Global Scenario Planning.
Map Out Your Supply Chain to get a clear understanding of which entities are most vulnerable to risk. Identify Sources of Risk – both External & Internal and Document.
- External Supply Chain Risks
- Demand Risks
- Supply Risks
- Environmental Risks
- Business Risks
- Internal Supply Chain Risks
- Manufacturing Risks
- Business Risks
- Planning and Control Risks
- Mitigation and Contingency Risks
Identify Critical Suppliers in Affected Areas & Assess the Risk Involved in the Entire Chain – Tier 2,3 etc – A lack of Transparency, Traceability & Accessibility relating to Second – and Third-tier Suppliers has left many firms vulnerable to shortages of critical components.
- Assess Risk & It’s Impact – Adopt Risk Evaluation Tools to understand the areas & levels of impact.
- Perform a Full Assessment of Suppliers based on factors such as PESTLE (Political, Economic, Social, Technological, Legal, & Environmental)
- Prioritize by Probability and Impact.Evaluate every impossible scenario, so that you can prioritize potential risks by taking into consideration likelihood they could actually take place and its impact. Then estimate the financial and brand impact of each event. Develop mitigation contingency plans, starting with the most likely and highest-impact risk scenarios.
- Be Aware of Suppliers’ Risks.Be aware of risks your suppliers may face, including supply risks due to Pandemics, regulations compliance, country risk, economic and political conditions or anything that may impact their ability to serve you.
- Build a Supply-chain Risk-Management Framework – Your Strategy
- Develop Risk Response Plan (Strategy)
- Create a Supply Chain Emergency / Contingency Plan – Carefully document all processes and create a single source of truth that employees can refer to when executing on your contingency plan.
- Avoid Single Sourcing and Shift to Alternative Sourcing or Multi-Sourcing : Multiple Suppliers – Monitor Potential Disruptive Risks and Develop Alternate -Sourcing Strategies for Crucial Items. – businesses should take the consideration and responsibility of creating strategic cost-benefit analysis on the additional cost of sourcing from other supply areas or nations.
Identify Backup Suppliers – Create a Plan B, Plan C, Plan D, and so on. Diversify Supply Base and Supplier Network so that you aren’t reliant on a Single Supplier and from Single Location.
- Avoid Single Country Focus to Suppliers from Different Geographical Locations.
- Shift from Offshore (Global Sourcing) to Nearshore (Local & Nearby Countries) to Sureshore.
Sureshoring – the ability to source goods or services from multiple locations so as to avoid having a Single Point of Failure.
- Develop Stronger Association with Supply Chain Partners. Especially Strengthen Logistic Service Capabilities with stronger tie-ups with Logistic Partners. Also Evaluate Alternative Logistics Options and Prepare for Potential Channel Shifts.
- Create Backup Plans and Test for Supplier’s Outage – Create Backup Plans like inhouse manufacturing or alternative manufacturing methods
- Build up Inventory.
Build Buffers for Inventory and Capacity
- Pause Just in Time (JIT) approach for Time being and Shift to Just in Case (JIC)
- JIT operations receive inventory only as it’s needed for production (Pull), whereas JIC stocks up inventories ahead of time (Based on Certain Forecasts – (Push)).
- This move expands companies’ focus from Optimizing Efficiency to Managing Risk.
- Establish a Crisis Response Team to make Critical Decisions in the Event of an Emergency.
- Digitalize Supply Chain : Integrate a digital system into your supply chain, which will enable it to be demand-driven. With the use of a digital system, you can respond to sales, and adjust your value chain based on these sales.
- Improve Supply Chain Visibility – Increase use of advanced data analytics to improve the efficiency of supply chain management
Have End-to-End Visibility is Important to Dig Down the Details. Align IT Systems & Support to Evolve Work Requirements. Supply chain visibility is the ability to Track different goods and / or Products in Transit, in the Inventory or in the Process – giving a clear view of the Inventory, Production Scheduling, Material Movement, Customer Services, and Proactive Status Updates.
- Stay up to date on Current Events and Adapt your contingency plan accordingly.
- Establish Timely Communication with key Customers, Suppliers and other Stakeholders.
- Conduct a Supply Chain Vulnerability Audit – Audit Suppliers & Service Providers based on their disaster plans.
- Institutionalize Good Practices – Governance and Regular Reviews.
- Building a Risk-Aware Culture. Educate Employees and Critical Suppliers on ability to face disruption and how to react and find contingencies.
- Prepare Succession Plans for Key Executive Positions and Develop & Encourage Multiskilling to Avoid Single Point of Failure
New and unexpected crises in supply Chain are inevitable. The best way to create a more flexible and resilient supply chain is by developing contingency plans and managing data through automated processes. By establishing a plan of attack and relying on reliable data, companies can thrive even when their supply chain is disrupted. Organizations are working to Transform the Supply Chain Business Model to make it more Agile and Resilient by Adapting Advanced Technology and other Strategic measures to mitigate risks by taking action to reduce an organization’s exposure to potential risks and reduce the likelihood that those risks will happen again.
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Disclaimer : The views and opinions; thoughts and assumptions; analysis and conclusions expressed in this article are those of the authors and do not necessarily reflect any legal standing.
Author : SN Panigrahi, GST & Foreign Trade & Project Consultant, Practitioner, International Corporate Trainer, Mentor & Author.
Authorized Training Partner (ATP) Instructor, PMI (USA)
Author can be Reached @ snpanigrahi1963@gmail.com; Mobile : 9652571117
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