Businesses need to make decisions on how their international supply chains will work after the Covid-19 crisis is over. It’s true to say that there have been some obvious frailties shown in modern supply chains after the events of the Covid-19 outbreak. Businesses throughout will face a very tough time to recover, something that will provide fresh challenges to supply chain managers.
What happened??
It wasn’t quite a complete breakdown, but it was a taster of the potential issues a major event either regionally or globally can cause to individual supplies.
Chinese companies and factories export the majority of goods and materials to the APAC region, with Europe and US in 2nd and third place respectively. This huge reliance on one country to supply perhaps business critical parts or materials is risky. As we’ve seen, when the Chinese government effectively shut down the country there were shock waves throughout the supply chain.
Procurement
If companies had made orders right before, or during, fulfilment would be impossible. If money had exchanged hands then a buyer would likely have needed to request a refund, especially as at the time no one knew how long it may be until restrictions would lift.
Logistics
Businesses may have confirmed that they had an order ready at factory – but no way to move it. Surface transportation reduced in areas and in some cases completely unavailable. Additionally, due to the reduction in passenger numbers many airlines cancelled many flights. When some flights resumed, they were mainly moving PPE, and all exports were subject to additional Customs quality checks.
Since flights need to move to and from places, i.e. airlines need to position aircraft where they’re required, this is a huge problem. Airlines cancelled around two thirds of all flights to and from China.
Compliance
There were issues in the beginning with exports of PPE from China to battle Covid-19. Perhaps this was due to poor stocks being the only items available or that some manufacturers took advantage. Either way it caused some damage to reputations which forced the Chinese government to introduce additional quality controls.
Sourcing new suppliers
One solution is to source new suppliers, but in different countries. This may not be possible for many procurement managers as manufacturing facilities may not be mature. Countries may also be unsuitable because of quality or simply they cannot make the item in question.
With the global pandemic it was clear that no country would escape restrictions on movement of goods. The degree that countries are ‘at risk’ for something similar is clear from each’s reactions.
What could be a good strategy, if possible, is to look at suppliers in multiple countries and have them on standby.
What if I get my supply from another country?
The other issue you need to investigate is where your suppliers obtain their parts or raw materials. A good relationship with a supplier will help you to understand the risks they have. Being aware if a factory obtains its parts from countries which may have additional risks will give you a better picture on your supplier.
Conclusions?
A good supply chain manager will need to check the provenance of everything that makes up the requirements for his or her factory.
- Work on alternative suppliers, in other countries if possible
- Look to source more locally if possible, however be aware of where your suppliers may be sourcing raw materials
- Improve your relationships with suppliers
- Work on a scale of what parts or materials are more critical – so that you can look at sourcing alternatives. Costs may not be a large factor here.
- If costs may increase changing suppliers make sure to build those into your costing models
- Ensure you update your disaster scenarios – if nothing else this Covid-19 crisis has been a lesson to many businesses.
It will take a long time to recover, and there will be clear shortfalls in some parts of the supply chain for a while. The hope is that there will be demand immediately so now more than every we need to all be working with each other to set this right.
Most importantly work on having a backup plan, whether additional inventory or an alternatively source. There’s no reason not to look at the cheapest supplier, but as they say don’t put all your eggs in one basket. Covid-19 might not be the only scenario affecting international supply chains.
