Global supply chains appeared to work without a hitch in the 21st century. Even as they became larger and more interconnected, the flow of parts, goods and raw materials never seemed to slow.
When a worldwide crisis strikes, however, global supply chain management suddenly becomes infinitely more complex. Closed borders and reduced economic activity can impact every aspect of it.
It is essential to take command of your global supply chain management in order to respond to the crisis and preserve business continuity, whether during a disease pandemic, armed conflict or natural disaster.
Managing your supply chain in times of crisis
In light of the COVID-19 pandemic, many wondered aloud whether it meant the end of the global supply chain, as the MIT Sloan Management Review™ pointed out. Nearly 75% of companies in the U.S. experienced supply chain disruption due to the coronavirus outbreak, according to a study from the Institute of Supply Management®️.
Yet while circumstances are dire, global supply chains may not disappear so much as be reinvented.
The focus for businesses during and after a crisis should be resilience and risk management. Prioritizing such factors in planning will help ensure efficiency in the meantime and prepare organizations for potential, unforeseen disruptions down the line.
But how exactly can business owners do that amid uncertain times? Here is some insight.
Global supply chain mapping
To have total transparency into your supply chain, your business needs to map it out in full detail. As resource-intensive as that is, a supply chain map can be a critical asset during a crisis. This organizational tool can help you understand which suppliers, locations and logistical capacities are at risk.
Some basic steps to global supply chain mapping include:
● Creating a geographic map that visualizes the presence of suppliers.
● Segmenting suppliers according to complexity, value, component type or SKU.
● Collecting constant data not only on your suppliers’ operations, but also the political, cultural, social and economic trends in their location.
● Using that data to calculate risk; layering on further analytics to crunch numbers.
One benefit of thorough supply chain mapping is that you will better understand the suppliers of your own suppliers, which adds an additional dimension to risk planning.
Nearshoring
One way to ensure greater control of the supply chain, and to mitigate risk, is to have yours nearby. That means finding domestic suppliers of raw materials and goods and services, or those in close geographic proximity.
Outsourcing has long been a strategy pursued by businesses of all types. Foreign locales may offer lower costs for manufacturing and distribution. However, the tradeoff is that a crisis in a foreign country may indirectly impact your organization.
So, what options do businesses have to inoculate themselves against earthquakes or political revolutions that lead to adverse economic conditions? Nearshoring suppliers is one effective method. While completely reshoring your supply chain may not be feasible, it is important for businesses to constantly be on the lookout for ways to optimize it through such opportunities on a case-by-case basis.
Contingency planning and testing
Contingency planning is at the crux of an effective response to crisis, but the value of it is in having one outlined before a crisis hits.
To start your strategizing, focus on forecasting demand. Certain raw materials, parts and finished products may experience fluctuations in demand during a crisis, like with medical supplies amid a pandemic. That may mean prices and competition for your vital resources increase, putting your business at risk.
A good contingency plan begins with estimating your inventory needs and building out second-choice options based on the statistical models you run. Make sure to run different scenarios based on what type of risk you and your suppliers may encounter.
It is also best practice to forecast demand from your end customers. Crises can introduce a slew of market uncertainties that ultimately result in reduced demand for your goods or services. If you end up buying too much when consumer demand is reduced, your unused inventory may be costing you more than it needed to. Having such insight is critical in times when precision and continuity are of the highest order for your business decision-making.
Interested in learning more about business planning and what financial factors you need to consider? Get in touch with a representative at Comerica Bank today.
