Managing Supply Chain Risk Due to Coronavirus

03/09/20

James B. Rice, Jr. is deputy director of the MIT Center for Transportation & Logistics and he shares that developing a cogent supply chain response to the coronavirus outbreak is extremely challenging, given the scale of the crisis and the rate at which it is evolving. The best response, of course, is to be ready before such a crisis hits, since options become more limited when a disruption is in full swing.

Below is a summary of several of the measures James B. Rice, Jr. suggested can be taken now specific to the coronavirus outbreak.

1. Start with your people. The welfare of employees is paramount, and obviously people are a critical resource. The companies that recovered the fastest after Hurricane Katrina in 2005 were those that tracked down all their employees who dispersed across the southeastern United States. It may be necessary to rethink work practices. When an ice storm shut down Louisville, Kentucky, in 2009, local workers could not get to UPS’s sorting hub. But workers could still travel by air, so the company flew in personnel from other cities to keep the hub running. This interchangeability depended on job and equipment standardization.
2. Maintain a healthy skepticism. Accurate information is a rare commodity in the early stages of emerging disasters, especially when governments are incentivized to keep the population and business community calm to avoid panic. Impact reports tend to be somewhat rose-tinted. However, local people can be a valuable and more reliable source of information, so try to maintain local contacts.
3. Run outage scenarios to assess the possibility of unforeseen impacts. Expect the unexpected, especially when core suppliers are in the front line of disruptions. In the case of the coronavirus crisis, China’s influence is so wide-ranging that there will almost inevitably be unexpected consequences. Inventory levels are not high enough to cover short-term material outages, so expect cause widespread runs on common core components and materials.
4. Create a comprehensive, emergency operations center. Most organizations today have some semblance of an emergency operations center (EOC), but in our studies we’ve observed that these EOCs tend to exist only at the corporate or business unit level. That’s not good enough — a deeper, more detailed EOC structure and process is necessary. EOCs should exist at the plant level, with predetermined action plans for communication and coordination, designated roles for functional representatives, protocols for communications and decision making, and emergency action plans that involve customers and suppliers.
5. Know all your suppliers. Map your upstream suppliers several tiers back. Companies that fail to do this are less able to respond or estimate likely impacts when a crisis erupts. After the 2011 Sendai earthquake in Japan, it took weeks for many companies to understand their exposure to the disaster because they were unfamiliar with upstream suppliers. At that point any available capacity was gone. Similarly, develop relationships in advance with key resources — it’s too late after the disruption has erupted.
6. Understand your critical vulnerabilities and take action to spread the risk. Many supply chains have dependencies that put firms at risk. An example is when an enterprise is dependent on a supplier that has a single facility with a large share of the global market. The Sendai disaster highlighted this type of exposure. For example, Hitachi manufactured approximately 60% of the global supply of airflow sensors, a critical component for auto manufacturers. The anticipated shortage of these items forced some automotive original-equipment manufacturers (OEMs) to ration the remaining airflow sensors to their highest margin product lines.
7. Create business continuity plans. These plans should pinpoint contingencies in critical areas and include backup plans for transportation, communications, supply, and cash flow. Involve your suppliers and customers in developing these plans.

Although it’s impossible to anticipate the arrival of global crises such as the coronavirus outbreak, firms can mitigate their impacts by taking supply chain preparedness to a higher level and applying the above principles. Access the complete article at https://hbr.org/2020/02/prepare-your-supply-chain-for-coronavirus.

APICS Greater Detroit also offers globally recognized certification programs throughout the year for individuals and companies looking to improve their supply chain management efforts. Please contact us via email at: classes@apicsdet.org with questions on our offerings and how they can help your company prepare for global changes.