I’ve written in the past about supply chain uncertainty – most recently in the context of the Amazon fires and Brexit. Now, another source of uncertainty is upon us: the coronavirus.
As of this writing, the virus has infected over 100,000 people and killed thousands. With the situation growing grimmer each day, and talk of pandemic increasingly in the news, Chinese authorities have shut down the city of Wuhan (where the virus originated) as well as 16 other cities across the country – reportedly quarantining an estimated 50 million people.
Supplier to the world: Business impacts of the coronavirus
It is estimated that 70% of the global supply of raw materials is controlled by China. Thus, when China starts shutting down its borders, the effects are felt everywhere. Already, the auto sector is starting to halt production due to an inability to obtain parts from Chinese sources.
Hyundai, for example, has shut down production at 3 factories in South Korea because it can’t get critical wiring harnesses from a Chinese supplier. Within China, virtually all of the major car companies have shut down production. But the auto industry is not alone. Companies like Bosch have also halted production in China.
The fragility of a global network exposed
It’s instructive to look back on the SARS virus of 2003 and compare then to now. Just 17 years ago, China was significantly less globally integrated. For example, as China estimates, the number of trips taken by outbound tourists from China in 2003 stood at 16.6 million. By 2018, the number was 149.7 million.
This 800% increase is just one of many measures that reminds us that global integration has increased dramatically over the past couple of decades. Today, supply chains are globally integrated like never before – and, like never before, they are uniquely susceptible to disruptions.
To quote Koray Köse from Gartner:
“The consequences of a pandemic event are hard to predict. However, the risks always exist and are augmented with further globalization and integration of supply chains. It is not a matter of if it will happen but to change the focus to be prepared when it happens. That is a shift of mindset in risk management and business continuity.”
Being prepared means being agile
Companies operating on the global stage need to be prepared for supply chain disruptions. These disruptions are happening now and will likely become more common moving forward. From trade wars and political unrest to climate change events and the threat of pandemics, change is here to stay.
The rational response for any company in this situation is to do whatever possible to minimize risk by increasing supply chain agility.
Quickly, here are 3 broad strategies that can help companies move forward:
Total visibility: Consolidate your view of relevant data
No supply chain agility initiative gets off the ground without a consolidated view of relevant data, across all levels of the supply chain, and across all partners in the supply chain. Business planners need a single view of all supply and demand and other critical supply chain KPIs with drill-down capabilities for deeper insight. Data needs to be sharable with everyone, including internal teams (design teams, manufacturing, logistics, and operations) and external partners. Agility means the ability to turn the ship of the supply chain on a dime – and this requires that all teams are working off of the same shared version of the truth.
Business networks: Leverage the power of collaboration
If your source for critical parts and materials is suddenly shut down, you need to have contingency plans in place. By making risk due diligence a natural part of the sourcing and procurement process and identifying alternative sources of supply for all key resources, you can confidently respond to disruptions. Bringing buyers and sellers together on a common networking platform can improve supply chain visibility, collaboration, and resiliency – allowing you to optimize opportunities and minimize risk. When supply chain agility is the imperative, supply networks are indispensable.
Inventory optimization: Strategic buffers to minimize the impact of disruptions
Another critical pillar for supply chain agility is inventory optimization. When you establish inventory buffers at strategic decoupling points, you can minimize the impact of disruptions. To execute effectively, a comprehensive view of relevant data is critical – and with this data available, you can apply machine learning algorithms to detect patterns, uncover insights, and predict disruptions. This, in the end, gives you more time to respond. That’s agility.
It’s difficult to tell what will happen with the spread of the coronavirus, but we can certainly understand what the virus is telling us in terms of how we deal with disruptions. Clearly, we need to find ways to keep goods flowing through vulnerable, globally integrated supply chains. Agility is the key.
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This post was syndicated from Forbes, and is republished here with permission.