Commercial UAV News has discussed the importance of distribution and the supply chain on a macro-level, underscoring the importance of maintaining appropriate availability to markets where the demand is high; but with COVID-19 affecting almost every market along the supply chain, it is now more important than ever to understand how to prepare for and mitigate interruptions in your supply chain.
Drones are proving to be a valuable asset in the fight against COVID-19, but the ability to maintain, let alone ramp up, any production is becoming increasingly difficult as businesses along the supply chain have had to make the difficult decision to shut down or downgrade their production. But there are ways to mitigate the impact, having a strong understanding of your supply chain can help you anticipate and stay ahead of expected disruptions in your business and the businesses you work with.
In the following article by Royce Morse, Managing Editor at IOFM.com, breaks down some important things you can do to maintain your supply chain and keep your business running as best you can in these difficult times.
Maintaining the Supply Chain During a Global Shutdown
A few months ago, we couldn’t even imagine what a “global shutdown” would look like—or why we’d ever experience one. Today, we’re faced with that cold, hard reality due to COVID-19, which has taken people by surprise and created a myriad of issues.
Retail and entertainment establishments have been hit hard, but even for business-to-business organizations, there are difficult challenges to address—both now and in the future. One of those is trying to keep a supply chain up and running while companies everywhere are struggling to continue their own operations.
These are challenging times, and you may find it nearly impossible to get some of the things you need. And nearly everyone is in the same situation, including your suppliers. What can be done?
What History Has Shown
Nearly twenty years ago, the U.S. experienced a terrorist attack on the World Trade Center in New York City. While businesses in and around the area were immediately impacted, the ripple effect was felt throughout the country and beyond. Why? Because the attack shut down the banking system. Wall Street was closed for nearly a week, businesses struggled and subsequently failed, hundreds of thousands of people lost their jobs and the supply chain was disrupted.
More recently, there have been other disasters. In Asia, there was a major earthquake, a tsunami and a significant flood. Here in the U.S., we’ve experienced two devastating hurricanes. Because our economy has become increasingly globalized, these disruptions were felt worldwide. And as businesses both here and abroad struggled to stay open and productive, companies scrambled to find suppliers for materials they could no longer acquire through their normal channels.
Now we’re facing a different kind of disaster—a global pandemic unlike anything ever seen before.
One of the results is that procurement is tasked with trying to source from an impaired supply chain. The problem is severe enough that many businesses have simply suspended operations until things regain some sense of normalcy. The problem is, we don’t know how long that will take.
Mapping Your Suppliers
What can you do right now? Harvard Business Review advises that something every company should undertake—but that many don’t because of the effort and resources involved—is to map their supply network. It is what it sounds like: Determine and document where your suppliers are located. For large manufacturers with thousands of vendors, that’s a big task.
But there’s more. HBR advises to go down as many tiers as you can. For example, if you source plastic bottles from a plant in China, where in China is that specifically? China’s a big country. If there’s an earthquake in a particular region, will that source be affected?
Now take it further. Where does the plastic that goes into the bottles come from? What about the caps, the labels and the foil seals? And where do those manufacturers get their supplies from? And on down the line, all the way to the raw materials. Be aware of the geography, the economic and political situations, potential logistics issues, possible vulnerabilities all the way down.
As you can see, it’s a major project to obtain and record all that information, which is why many companies don’t do it. However, having this information ahead of an event can help you know which natural disasters and trade disruptions can potentially affect your supply—and your suppliers’ supply. This gives you an advantage when there’s a disruption. HBR says the cost of this activity will more than be worth it in the event that your supply chain takes a hit and you quickly need to regroup.
Have Alternative Sources Ready
A common trap companies can easily fall into is the “putting all your eggs into one basket” problem. The Wharton School of Business at the University of Pennsylvania notes that while it’s tempting to maximize efficiency while reducing costs by giving all your business to a specific vendor, this leaves you particularly vulnerable, which is what’s happening right now.
For this reason, it’s important to have other vendors available. You may not give them the bulk of your business when things are normal, but when things aren’t, you need to have a backup plan through established relationships with alternative vendors. Ideally, they won’t all be located in the same geographical area either. Whether it’s a natural disaster, disease or significant political unrest, having all your suppliers in the same region can mean you won’t be able to get what you need from any of them if something happens.
Understand the Variables
Procurement must deal with a lot of other moving parts. First, there’s buying behavior and how that’s likely to change during a crisis, as we’ve seen with the hoarding behavior during the Covid-19 outbreak. In addition to the expected shortages in disinfectants, soap, masks and medical supplies, we’ve seen odd buying patterns, such as the stockpiling of bathroom tissue and grocery items. While it’s hard to predict irrational spending during a crisis, it pays to expect the unexpected based on what you do know and can logically infer.
How much inventory do you have? Striking the right balance between enough and too much product on hand can be tricky, but also take into consideration the inventory available within your supply chain.
However, manufacturing is also limited by equipment and labor. Right now, businesses that sell high-demand products are struggling with a finite amount of machinery, staff and hours in the day. And in some facilities, that staff may be reduced because people are becoming ill. Do your suppliers have a backup plan in this eventuality? Can they outsource production or bring in a contingent workforce? Can they quickly repurpose some of the equipment to produce higher-demand products?
Consider, too, logistics. McKinsey advises ramping up carrier capacity as necessary and remaining flexible on the mode as the situation demands. Knowing your options and maintaining relationships with various providers in the best of times can help keep your products moving in the worst of times.
Pay Your Invoices
Although it may seem obvious, your supply chain depends upon your payments to be able to provide you with what you need. In a time of high demand, customers that don’t pay timely are a liability. Given that suppliers’ own costs of materials and shipping may be inflated due to limited supply and competition for resources can mean that they have little choice but to cut off slow-pay customers in favor of those who keep the cash flowing.
Of course, in times of crisis, you probably don’t want to rely on the mail and paper checks either. As we’re seeing right now, manual payments can create issues. AP staff must retrieve the physical payments and deposit them, requiring they break quarantine and handle the mail, which can expose them to the virus. In other types of disasters, mail delivery may be disrupted entirely. Electronic payments are the fastest and most secure method of getting your suppliers paid quickly and safely.
Is It Too Late Now?
While it’s critical to have done most of this work before a crisis happens, you can still make headway on some of these things, especially if you have down time as a result of reduced operations. We don’t know how long it’s going to take things to get back to pre-pandemic status. While Wharton says that China is already beginning to rebound economically, we have no idea how long it will take to get back to the “new normal,” whatever that turns out to be.
Assessing and expanding your supply chain, being mindful of every part of the process and constantly evaluating your position relative to the global situation will get you much further than just waiting it out and hoping for the best. And it will prepare you for whatever might come next.