The novel COVID-19 pandemic sweeping the globe has been a strain on every industry and business.
Beyond the immediate need for supplies, questions are being raised about the risk inherent in current supply chain structures. Over recent decades, supply chains have globalized, specialized and become leaner or “just-in-time”. They are more efficient and less risky in certain areas, but potentially more exposed to a breakdown of cooperation.
And while the full impact of the Coronavirus on the supply chain isn’t yet known, the outbreak is forecasted to be over in China by April, but who can really say when the ripple effects will minimize?
In the meantime, overseas manufacturing companies are struggling to find ways to weather the storm. Here are some techniques to avoid supply chain risks in a time when a rare “black-swan” event shocks the system.
The Beginners Guide to Outsource Manufacturing
1) Develop a Contingency Plan
Many business experts are recommending that companies start scenario-planning strategies for different demand environments and also have models in place for both optimistic and conservative scenarios. New supply chain planning should be included in these scenarios, as a conservative contingency plan would include the virus lingering and creating impacts into Q4 and beyond.
Understanding that there might be an eventual Supply Chain Shock is also key, especially since many shocks are unforeseen or, conversely, may never happen. However, dedicating capital to turnkey manufacturing in Southeast Asia is a very simple and proactive solution to a situation, such as Coronavirus, that may or may not occur again in the future.
2) Mitigate Supply Shock
Businesses should identify suppliers in different regions to diversify supply chains and safeguard against shortages, especially for products with longer supply cycles. Companies could find a Taiwan factory or find a Thailand factory to diversify their chains, which means outsourcing manufacturing to other parts of Asia due to the direct impact the virus has had on, as well as being suspected of spawning in, China.
3) Manage Demand Explosiveness and Increase
Three ways to do this is to halt promotions, prioritize products and develop inventory reserves. In a recent Bloomberg report citing Nielsen data, sales of certain products, including surgical masks and first-aid kits, were said to have spiked in late February due to Coronavirus fears. Panic-buying events lead to price gouging, as supplies are limited. Companies should plan for a “bull-whip effect” to impact business and suppliers due to high volatility. Supply chains can be linked to consumer demand, which will allow trusted suppliers to have full visibility of the demand. Further, develop trusted networks made up of suppliers, customers, competitors, and government officials that are focused on risk management.
4) Cost Cutting Opportunity
Many companies and organizations are taking this time to do away with superfluous costs, especially to their supply chains. Three top strategies to cut costs in the supply chain include utilizing space better, automation and outsourcing. Companies are implementing furloughs for employees and taking this time to clear payroll of anyone not considered an essential employee. This then leads to outsourcing manufacturing to Asia, where it is a less expensive supply chain and has been less severely affected by the virus.
In early March, NPR reported that some factories in China were reopening and resuming production, however, with many new procedures implemented to continue to fight the virus. China inspection service has also resumed at these factories, allowing pre-shipment inspection in Asia and working against a supply chain shock that could ultimately leave permanent damage.
While “black-swan” events of the magnitude of coronavirus can rarely be predicted, understanding supply chain risks and alternative opportunities gives companies a plan and strategy to face any crisis that may threaten the supply chain.