The COVID-19 pandemic has had a significant impact on supply chains. Many of these issues are new to even business veterans. However, supply chain experts say there are steps businesses can explore now to manage disruption.
Capacity constraints, such as the reduced availability of supply and price hikes for international shipping, are the most significant and immediate supply chain effects of the pandemic for businesses importing from overseas.
How to avoid supply chain disruptions?
Although disruption continues in supply chains, there are some steps businesses can take to ensure sourcing capabilities in the short and longer-term.
Ensure open communication
The best move a business owner can make right now is to communicate with the supply chain partners and staff. Active communication and thinking of alternative plans are critical for minimising the supply chain disruptions on the company.
Given potential shortages in supplies, communicate with key customers promptly, explore alternate supply arrangements and find ways to reduce losses to avoid customer friction in this difficult time.
As part of this effort, businesses should understand their contractual commitments to their customers and potential costs.
Pre-empt future overstocks
A central concern for all businesses in the supply chain should be avoiding the bullwhip effect. This is a supply chain term for what happens when extreme demand at point-of-sale for certain goods results in retailers over-ordering. This causes distributors to also over-order and manufacturers to over-produce. The result can be massive over-stocks of products that arrive after buyer demand has been thoroughly satisfied.
Toilet paper, for example, experienced the bullwhip effect. Consumer buying behaviour has changed quickly because of lockdowns, and high consumer demand could lead to excessive over-stocking.
In Australia, the rush for the product was among the most severe. Major supermarkets were selling a weeks’ worth of toilet paper in just one day. E-commerce toilet paper business Who Gives a Crap reported a near 1,000 per cent rise in sales.
Be financially flexible
At the same time, Australian businesses will want to avoid cash flow problems and supply issues that may occur further down the line and cause supply chain disrpuption
The supply chain is seen as a function of consumer demand traditionally. But amid potential cashflow disruption and short-term changes in consumer buying behaviours, businesses should think about it through the lens of finance— and think about their finances differently.
As the crisis continues, higher transportation costs will create additional financial strains. Businesses can prepare by assessing their available lines of credit with financial institutions and agreements with logistics providers. It may be necessary to draw down lines of credit or extend payment terms with logistics providers as tactics to free up cash flow.
Shore up stock
Another way to prepare for potentially higher costs and longer delivery times is to build up stock.
Businesses with the financial capability and the opportunity may choose to add inventory in advance if possible.
Diversify your sourcing
As the pandemic develops, other supply chain problems are likely to crop up. Even though international manufacturing is starting up again, businesses that relied heavily on sourcing overseas may find their specialist manufacturers are no longer operating.
Now would be the time to undertake a careful and systematic analysis of your supply chain and figure out where you can diversify.
With many businesses in Australia forced into hibernation during the current restrictions and lockdowns, some are finding their usual supply chain partners out of action. Seeking out ways to collaborate can yield surprising results.
Future supply chain disruption responses
A deeper analysis of supply chain dynamics and introducing more flexibility and diversity among suppliers and supply chain partners are some ideas for consideration.
In addition to those long-term solutions, in the short run, business owners can best respond by immediately having in-depth conversations with their supply chain partners, assessing their stock and keeping on top of fast-changing consumer demand.
Bottom Line
Most businesses will likely come out of this crisis with more understanding of their supply chains and more efficient resourcefulness than ever before.