‘In supply chain, crisis management should be focused on workforce, products and costs’

crisis management

To mitigate disruption by coronavirus, supply chain leaders should focus their crisis management activities on three key impact areas: workforce, products and costs, according to a new report by research and consultancy firm Gartner. “Supply chains will not be the same after this event,” says Sarah Watt.

“As COVID-19 spreads globally, we are seeing increased supply chain disruption, but also changes in consumer spending habits,” comments Watt, Senior Director Analyst at Gartner. “Supply has been impacted in three primary ways: limited access to employees due to quarantines, factory closures or manufacturing slowdowns, and limited access to logistics to move goods. Most supply chain organizations are in crisis management, assessing impacts and response on a daily – if not hourly – basis.” Gartner’s advice to supply chain leaders is to focus on three main areas: workforce, products and costs.

Impact Area 1: Workforce

In order to limit the impact of COVID-19, many employees have been instructed by local governments or advised by their employers to stay at home. Employers have also put in place controls around travel and site visitors. For factories, this resulted in goods not being produced and exported to dependent markets or other factories. As long as this situation continues, supply chains won’t work as intended, says Gartner.

“As the virus extends globally, supply chain leaders need to think about how to protect the health of workers, and support individuals who are ill. Providing clear and consistent communication through human resources and travel security is essential,” recommends Watt. “As this crisis is ongoing, the risk is that crisis management teams become fatigued and make poor decisions.”

Impact Area 2: Products

COVID-19 has the potential to change the competitive landscape. Suppliers of commoditized products are at risk of losing market share, as clients will look into substitute suppliers when they don’t receive their products on time. However, products associated with a higher degree of brand loyalty are likely to be less impacted in the short term. As the virus progresses, consumers might adopt more conservative spending patterns, focusing on essential goods.

When forced to make trade-off decisions, Gartner says that supply chain leaders must analyse and forecast the impact of coronavirus on customer demand and product availability. Prioritization and trade-offs can be made based on high-revenue or high-profit margin products that are in demand.

“Supply chain organizations need to frequently reassess their supply and demand plans based on the evolution of the virus and consumer sentiment,” continues Sarah Watt. She adds that supply chains may also experience sharp increases in demand for products, or unexpected consequences such as panic buying for essential items.

Impact Area 3: Costs

The coronavirus crisis is affecting companies financially in various ways, such as due to increased costs for shipping, and more broadly there are natural concerns about companies meeting their financial objectives. “Even contractually agreed prices and quantities of materials might no longer be valid,” warns Watt. She goes on to explain that suppliers could invoke force majeure clauses or otherwise look to pass on additional costs up through the supply chain.

“It’s also a good idea to sit together with the legal department and analyse all supplier contracts. When the time for renewal comes, make sure that the organization is financially protected against similar situations that might occur in the future. Supply chains will not be the same after this event. There will be an increased focus on resilience, risk exposure and business continuity plans going forward,” she concludes.