The Centers for Disease Control and Prevention are currently recommending postponing gatherings to help slow the spread of Coronavirus (COVID-19). For business owners, the COVID-19 pandemic will affect their business’s bottom line in many ways, including a big hit to their supply chain. Whether you’re importing materials from China or elsewhere around the globe, most procurement professionals will notice an impact sooner or later.
According to a poll conducted by the National Federation of Independent Business, 23% of small businesses are already experiencing a negative impact from the current pandemic – and of those who aren’t, about half expect to soon.
In short, the COVID-19 pandemic will have serious, lasting effects on the global supply chain for months or even years. Here are some of the challenges to expect and how your company can prepare to persevere.
Supply shortage and price increases
Logistical challenges routing supplies through affected areas can lead to higher demand and lower supply – and that means increased prices. You can expect unpredictable supply levels, and some price hikes on materials regardless of industry. Prepare for these issues by planning ahead and budgeting to pay more for your most essential supplies. Evaluate your current supply levels and order trends, and decide what you can do without restocking for a while. In addition, membership to a group purchasing organization (GPO) will pay off in terms of finding the best pricing and negotiating with vendors during uncertain times. If money is already tight, look for a GPO that’s supported by supplier fees and free for members.
Travel might be restricted or discouraged for some time, limiting companies’ ability to source out new suppliers for key parts of the supply chain. This could be especially bad news if a crucial supplier is impacted by the pandemic to the point of no longer being a reliable partner for your company. In this case, you will have to replace that partner either for the short-term or indefinitely. Unfortunately, it can be tough to discover and evaluate new potential partners with international or even domestic travel restricted. If you do need to replace a supplier, start your search by checking with the manufacturer for recommendations. Try tapping industry peers’ knowledge and experience. Belonging to a GPO can also help in this area by connecting you with trusted suppliers who already have pricing agreements in place.
A pandemic of this magnitude will continue to impact hubs around the world, and therefore the transportation of physical materials. Even if you are able to find reliable suppliers, getting orders to your location will be a challenge in itself. You or your suppliers might be able to find alternative routes or methods of transportation, but you can expect delayed delivery on many of your orders. When you place orders, plan ahead for an increased lead time when possible and increase order quantities to last you longer between orders. In addition, maintain transparency with your customers and communicate whether they should expect delays or service interruptions as a result of supply chain disruptions.
While COVID-19 is not considered extremely dangerous for most of the population, quarantine and distancing measures will affect large numbers of people even if they’re not infected. Companies around the world will see their labor force impacted to varying degrees. Many employers have asked all employees who can work from home to do so. In-person meetings and visits to suppliers will have to be minimized or stopped completely for a while. Luckily, you likely have established communication channels that can accommodate your procurement process. Strengthen your communication with key suppliers during this time. If you don’t have the right tools and technology in place to facilitate that communication, it’s a good time to consider investing in them.
Step back and evaluate your 3 Ps
A silver lining is that global supply chain disruptions like a pandemic virus force businesses to look critically at their procurement process. Your process, people and paperwork will likely all be affected by the current situation. In a Johns Hopkins University interview, business operations professor Goker Aydin said, “A resilient supply chain must be able to detect early warning signs of a disruption and it must respond by shifting production to alternative sources.”
How quickly did your company identify and respond to procurement challenges caused by the COVID-19 outbreak? If your ability to respond was less than ideal, take the lessons learned and build your supply chain resiliency for future issues. Next steps for your organization could be to develop a documented crisis management plan and begin to diversify your supply base.