The effects of the Covid-19 virus are yet to be accurately measured in terms of human life and global economic impact. Although the numbers continue to climb in parts of the country, it is the universal expectation that the industry and the world will slowly recover from this pandemic. Now is the time to formulate your organizations recovery plan.
Many businesses can mobilize rapidly and set up crisis management mechanisms, ideally in the form of a nerve center. The typical focus is naturally short term but in terms of this virus these changes may be in place for years. How can supply chain leaders also prepare for the medium and long terms and build the resilience that will see them through the other side?
In the current environment, an initial plan should address several issues that require quick action across the end-to-end supply chain. These issues should be planned for concurrently with steps to support the workforce and comply with the latest government policy requirements.
- Create transparency on multi tier supply chains, establishing a list of critical components, determining the origin of supply, and identifying alternative sources. Creating a transparent view of a multi tier supply chain begins with determining the critical components for your operations. Working with operations and production teams to review your bills of materials and catalog components will identify the ones that are sourced from high-risk areas and lack ready substitutes. A risk index for each BOM commodity, based on uniqueness and location of suppliers, will help identify those parts at highest risk.
- Estimate available inventory along the value chain including spare parts and after-sales stock for use as a bridge to keep production running and enable delivery to customers. Most businesses would be surprised by how much inventory sits in their value chains and should estimate how much of it, including spare parts and remanufactured stock, is available. Additionally, after-sales stock should be used as a bridge to keep production running.
- Assess realistic final-customer demand and respond to shortage buying behavior of customers. A crisis may increase or decrease demand for particular products, making the estimation of realistic final customer demand more difficult. Businesses should question whether demand signals they are receiving from their immediate customers, both short and medium term, are realistic and reflect underlying uncertainties in the forecast.
- Optimize production and distribution capacity to ensure employee safety, such as by supplying personal protective equipment and engaging with communication teams to share infection-risk levels and work-from-home options. These steps will enable leaders to understand current and projected capacity levels in both workforce and materials.
- Identify and secure logistics capacity, estimating capacity and accelerating, where possible, and being flexible on transportation mode, when required. In a time of crisis, understanding current and future logistics capacity by mode and their associated trade-offs will be even more essential than usual, as will prioritizing logistics needs in required capacity and time sensitivity of product delivery. Basically, know when you need to expedite. Collaborating with partners can be an effective strategy to gain priority and increase capacity on more favorable terms. Your 3PL provider is an excellent source of resources in this situation.
- Cash will be king. Manage cash and net working capital by running stress tests to understand where supply chain issues will start to cause a financial impact. As the crisis takes its course, constrained supply chains, slow sales, and reduced margins will combine to add even more pressure on earnings and liquidity. Businesses have a habit of projecting optimism to calm equity ownership. Now they will need a strong dose of realism so that they can free up cash. Companies will need all available internal forecasting capabilities to stress test their capital requirements on weekly and monthly bases.
These are general applications which likely apply to any organization. To successfully manage our new normal we must fully understand, on every level, how it affects our organization.
Contact Land link Traffic Services for assistance in developing a tailored plan for your specific supply chain needs. Please let us know how we can help you come out of this experience efficiently.
Stay Safe Everyone.
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