Supply chain flexibility key to turn COVID-19 challenges into opportunities

The COVID-19 pandemic has disrupted critical supply markets around the world. Organizations reliant on transoceanic shipping, air travel and ground transportation to reach suppliers and customers are now tasked with navigating halted operations and shipment delays due to varying regulatory restrictions and shelter-in-place orders.  

Every industrialized country has been impacted by the pandemic. “Economies and supplies are way more interconnected, if not more codependent, than ever before,” said Baker Tilly during the webinar, From survival to recovery: shielding your supply chain from COVID-19. The heightened awareness of the global economy has stunted the movement of people and slowed or idled the production of goods – resulting in dwindling supplies and increased costs for goods and freight.

Baker Tilly said that sourcing and product flow have not changed much in the United States, and will not do so until inventory depletes. Currently, the biggest impact on the economy stateside is the volume of products being transported and restrictions on products by customs and border protection agencies. Some products, such as medical supplies and personal protective equipment (PPE), have fewer restrictions and enjoy priority status as they are processed; other products are stalled indefinitely. Additionally, restrictions and processing times are expected to increase with impending U.S.-Mexico-Canada Agreement (USMCA) standards, which will factor product origins into the manufacturing and distribution process.

Historically, the supply chain has heavily relied on China for labor and goods, including the city of Wuhan, where COVID-19 is believed to have originated. As the virus spread in the early months of 2020, economic activity across China was brought to a standstill – affecting customers, employees and organizations throughout the world.

Supply chain flexibility

As governments create tentative plans to reopen economies, and factor in the possible resurgence of infections, it is more important than ever for organizations to create flexible business models that convert COVID-19-related challenges into opportunities to find innovative ways to make and move product.

By embracing new ways of conducting business, organizations can serve customers, reduce costs and capitalize on supply chain responsiveness – helping to ensure a successful, sustainable future. The first step is prioritizing next steps for the foreseeable future, as outlined below.

NOW – the first 30 days

To the extent possible, focus on tactical, forward-planning activities. Shift thinking from making decisions based on organizational priorities and assumptions to making decisions based on customer needs. This will help create an immediate benefit to your organization and establish the framework for a more resilient supply chain.

Communication is key. Companies should establish a cross-functional crisis management team to communicate status and plans with owners and shareholders – engage with customers to manage expectations regarding delays, prioritizing products critical to meeting their immediate and near-term needs.

• Provide appropriate hygiene and safety protocols and supplies for employees
• Assess options for adapting manufacturing to products that assist in combating COVID-19
• Review safety stocks and inventory levels of critical products and materials across supply chain
• Mitigate potential disruptions due to supplier constraints and service reductions; if possible, renegotiate agreements
• Assess alternative supply providers, networks and markets; consider reserving or procuring air freight, international shipping or ports with fewer restrictive requirements months before future orders and inventory are expected to ship, so you can more seamlessly resume operations
• Consider tapping into existing lines of credit and apply for any relevant government-sponsored COVID-19-related assistance

Even while taking these immediate actions, “don’t take your eye off of cybersecurity,” said Jeff Peterson, director and supply chain and operations services leader. Bad actors attempting to compromise organizations and their data are more creative and vigilant than ever, taking advantage of the uncertainty and ensuing anxiousness of the pandemic’s effects. Secure and accurate data creates a secure foundation for efficiently managing potential disruptions to inventory, manufacturing and operations, transportation and logistics.

NEXT – 30 to 120 days out

Forward planning intersects every aspect of the supply chain and requires leadership to consider different scenarios about how an open economy or global recession may affect businesses. Each executable plan should strategically refocus product offerings and supply chain planning tools to align with customer priorities, eliminate complexity and consider the possibility of expanding into new markets in the post-pandemic period.

• Review manufacturing strategy and contract service providers; consider insourcing production of components or parts previously sourced from high-risk regions
• Determine the cost advantages of relocating manufacturing and distribution based on labor availability, as furloughed workers may have found jobs elsewhere
• Establish capacity with distributors, who will likely see an influx of service and capacity requests as businesses around the world resume operations; procure air cargo capacity to offset likely long lead-times for ocean freight
• Develop plans to implement, expand and optimize online shopping platforms, enterprise resource planning (ERP) software, intelligent automation, data analytics and manufacturing technologies to help eliminate repetitive work and streamline operational functions

LATER – four months to two years out

Begin implementing tools and processes based on strategic insights and crisis scenario plans. Leverage your visibility of and insight into the supply chain to accelerate the transition to more responsive business operations. Be proactive and make decisions that will enable a more streamlined and resilient manufacturing and distribution process.

• Prepare for significant rehiring and retraining efforts as operations resume or increase
• Integrate functions to respond to, prepare for and relaunch into new market economy
• Consider targeted M&A transactions for capacity, market share or innovation
• Establish online channels for sales and customer service
• Implement redesign across manufacturing and distribution networks
• Implement redesigned sourcing strategies for critical materials, components or equipment

While supply chain interruptions related to the pandemic threaten the survival of many businesses, focusing on this “now, next, later” strategy is an effective way to focus your company’s resources and prepare it to better address future trade policy shifts and supply disruptions.

For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.