Coronavirus (COVID-19): Maintaining Supply Through Black Swan Events
None of us have a crystal ball to determine what the future holds. Recent history has shown that headwinds in one corner of the world can quickly snowball to reach our doorstep overnight, which makes managing supply chain operations during black swan events like coronavirus (aka COVID-19) that much more challenging.
In our connected global economy, supply chain disruptions like economic downturns (e.g., 2008 recession), geopolitical shifts (e.g., 2018 US tariffs on Chinese imports) and health pandemics (e.g., 2020 coronavirus) have an immediate impact on our businesses’ day-to-day operations. These once-in-a-decade black swan events are predictably unpredictable.
At IndustryStar, we don’t take lightly events like coronavirus, which has impacted a growing number of people both domestically and abroad. We, like you, are hoping for swift relief and full recovery for those affected. Business losses, although unfortunate, aren’t comparable to the health and safety of our fellow citizens. We appreciate the personal stress that this crisis may be causing your team, your customers and your suppliers as it impacts global supply chains. As such, our Supply Chain Solutions team is available to share supply risk management best practices we’ve deployed for customers to aid your efforts in the days ahead.
Below are seven timeless actions to navigate through the current coronavirus pandemic, and to reduce your current supply risk by mitigating supply disruption during future black swan events.
7 Actions to Navigate Through the Coronavirus Pandemic
1. Involve Extended Team to Create More Robust Plans
Simple idea, yes; however, in order to quickly react, companies often rush to hastily craft a war room with a small group of senior leaders, which can limit viewpoint diversity. The output can work, but asking for ideas from all team members results in more robust contingency plans that have much higher chances for success. During black swan events, we need to admit the situation is unprecedented and that we don’t have all the answers. Teams want and need clarity during uncertain times, even more so with events that concern their health and safety like coronavirus. As leaders, we need to consistently clarify our current understanding and plan of record, and frequently provide updates.
2. Enable Real Time Communication for Clearer Information
Weekly, and in some cases daily, team touchpoints are key during dynamic events. Clearly documenting specific actions, leads, timing and statuses is crucial. Agile project management cloud software tools that geographically dispersed groups can utilize in real time is a must-have in today’s fast paced world. Black swan events are unpredictable, so the more that leaders can facilitate real-time information flows, the faster their teams will be able to react. Specifically, with unfolding health pandemics such as coronavirus, many of your employees may need to work remotely. Thus, it’s critical that your plans and supporting meetings are technology enabled on day one.
3. Stock Up to Eliminate Small Self-Inflicted Wounds
Much of managing through an unknown, developing event is ensuring you and your team don’t make self-inflicted mistakes. Ensure you don’t spend so much time preparing that you forget about tactical ongoing business supply needs like reordering office supplies. Black swans are uncharted, stressful events and team members have a wide range of responses to stress. As a leader, it’s critical that we strive to reduce the number of decisions our team needs to make during a crisis; not because they can’t handle them, but because there are going to be a number of new consequential decisions to make in a condensed amount of time. We need to empower them to make fewer high-quality decisions. Health pandemics like coronavirus can slow your supplier’s production to a halt. Stock up on critical, low-cost items like indirect, office supplies, maintenance, repair and operations (MRO) and commodity production items such as fasteners. Carrying a little extra inventory will reduce the decisions needed to maintain your operations.
4. Forecast Business Impact Scenarios for Swifter Actions
Monitoring how black swan events influence leading economic indicators like the stock market and oil prices can provide early signs of where the overall economy is trending. Further, lagging economic indicators tailored to your industry like ones found in the Institute for Supply Management’s Purchasing Manager Index and monthly new vehicle sales, when compared to past events, offer a consistent outlook to gauge the economic impact of dynamically unfolding events.
What if the US economy slides into a recession, and your sales are reduced by 25 percent? What if you lose your two largest customers? What if schools close and many of your employees with kids must stay home to provide childcare? You can’t model every scenario, but as a leader you must forecast how major shifts in the economy could impact your business by understanding your 1) cash burn rate 2) revenue and 3) costs overall and by major customer. Next you need to understand your 4) fixed costs and 5) variable costs and then outline 6) major levers you could pull and the associated impacts to burn rate, revenue and operations. As a hypothetical example, to maintain production supply, a Tier I automotive supplier might decide to re-source production of a mechanical module from China to the US, if US vehicle sales drop 2 percent in the second quarter and coronavirus is still unresolved by June 30th to save $3 million annually.
5. Proactively Partner with Suppliers to Avoid Supply Disruption
Your best laid plans are only as good as the weakest link in your extended value chain. The time for leaders to dive in and roll up their sleeves to help a supplier isn’t after a problem has arisen. As black swan events unfold you need to map out a list of high-risk suppliers and issues, and actively partner to remediate them. Rank issues by potential impact using a weighted score comprised of 1) percentage likelihood of disruption 2) days of disruption and 3) lost daily revenue. Your suppliers are an extension of your organization, so their success is your success. If major scenarios that you outlined prior start to transpire, schedule weekly conference calls with your critical suppliers’ leadership. Offer your help and visit their facilities to support their operations. Health pandemics like coronavirus present unique travel and logistics restrictions, and delays. Host mobile video conferences with suppliers to view for yourself supplier operations and inspect inventories and shipments as needed as an alternative.
6. Form a Rapid Response Team to Quickly Remediate Issues
There are many types of black swan events: inclement weather, geopolitical disputes, supplier bankruptcies, etc., that although no more predictable, require a similar response and rapid onsite presence. The most prepared manufacturing leaders have assembled a team of trained, experienced professionals that can be rapidly deployed anywhere in the world to quickly assess, report and resolve challenges at their suppliers. If you find yourself with a lack of internal people capacity and/or skill sets in this area, an on-demand Supplier Quality as a Service firm could offer you a lower-cost way to react quickly without the overhead. Coronavirus, as with other health pandemics, will limit and restrict in-person support, but the need for supplier monitoring and shipment tracking and tracing will remain high. Engaging temporary support resources will not only give you piece of mind, but also should pay for itself in supply disruption cost avoidances.
7. Utilize On-Demand Support to Ensure Available Resources
Flexibility is vital during black swan events when the economic waters start to get choppy. Review your current staffing. Are there areas where you can reduce the headcount? Are there areas where you should add to the headcount? As a best practice, many leaders across automotive, building products and consumer products are utilizing on-demand technology-enabled managed services organizations to fulfill part of their essential day-to-day operations. Typically, these firms can lower the cost of similar skill set full-time equivalents by half and structure most of their support as scalable, offering more as you need and less as you don’t. This flexibility is key for four reasons, you can 1) respond quicker to unforeseen events like coronavirus 2) reduce disruption risk by executing work remotely from multiple locations via collaboration software 3) lower your fixed costs if the economic environment deteriorates and 4) scale faster to realize growth opportunities when the market rebounds.
Thrive in Good Times & Bad
As the late great John Wooden once said, “failing to prepare is preparing to fail.” To reduce the likelihood of a detrimental supply disruption you and your team need to eliminate self-inflicted wounds through purposeful actions. Navigating high-risk crises is stressful enough.
Black swan events present a rare opportunity for leaders who pragmatically execute throughout a crisis to significantly strengthen their business in relation to reactive competitors. Supply chain professionals are uniquely positioned to navigate organizations through crises by reducing the impact of supply chain disruption. New Agile Supply Chain business models, technologies and approaches not only present more cost-effective operations in good economic times, but also enable greater agility that allows companies to thrive no matter what the future holds.