As COVID-19 continues to spread, businesses are experiencing a historic shock to their supply chains, raising serious concerns about their operational viability and the livelihoods of their workers.
But could this be the event that catalyses companies to transform their global supply chains? And how can hard-won environmental, social, and governance (ESG) standards be maintained during and after this crisis?
A Time of Significant Disruption
A decades-long focus on ‘just-in-time’ supply chain optimisation – designed to minimise costs, reduce inventories, and drive up asset utilisation – has left companies vulnerable to global shocks.
For instance, more than 200 of the Fortune Global 500 firms have a presence in Wuhan, the industrial province in China where the outbreak originated. These same companies who are reliant on suppliers in China have already experienced significant disruption.
As business recovers, constraints will persist in extended supply chains that will make aligning supply and demand more complex. Imbalances of inventory across primary supply networks will only further this challenge, meaning fast action is required to find alternative sources to satisfy customer demand. Similarly, organisations will need to prepare for portions of supply networks to come back online later than others.
Upholding ESG Standards
As your supplier landscape adapts to match availability, it is imperative to consider how you will maintain quality, safety and sustainability standards. The most critical actions businesses can take to preserve these standards are:
- Maintain supplier qualification systems and assessments. Maintain functions to ensure that you are actively qualifying and assessing suppliers, particularly before onboarding suppliers from new locations.
- Deliver continuous training. Consider how you deliver supplementary guidance and training to your buyers e.g. via dedicated remote sessions, that describe your qualification criteria for any given parameter and how to implement your sourcing rules.
- Continue to monitor suppliers. Establish plans to execute remote audits of existing suppliers. Determine which parts can be conducted remotely and those that will require you to wait until the resumption of physical audits to ensure your assurance programmes remain robust and stay on schedule.
- Evaluate COVID-19 compliance. As they return to work, check suppliers’ compliance with national COVID-19 regulations and instructions on critical aspects such as PPE, factory worker safety, relocation of dislocated workers, control of access, limitation of unnecessary travel etc.
Taking these actions will not only help you to adapt to the “new normal” but will actively demonstrate to your stakeholders your ongoing commitment to delivering high ESG standards.
Re-imagining the “Next Normal”
This scenario also presents business leaders with the opportunity to “re-imagine the next normal” and reinforce their supplier ecosystem to build future resilience.
This starts with enhancing supply chain systems with functionality to improve visibility across the extended supply network, allowing for better understanding of supplier risk hot spots. This needs to be followed by driving specific actions through enhanced target collaboration with suppliers, to:
- Understand risk. Identify and analyse sources of supply chain risk by continuously and reliably monitoring vulnerabilities and enhancing visibility throughout your supply chain.
- Identify additional sources of supply. Proactively qualify new suppliers that can be leveraged quickly to mitigate against disruption on a temporary or even permanent basis.
- Strengthen supplier collaboration. Proactively reach out to your strategic and bottleneck suppliers, who might be at medium-term risk if the crisis continues for more than 3-6 months, to help them position for the “next normal” and remain as viable businesses. This might involve cross-industry collaboration and relaxing normal modes of competition.
In time this will allow you to pivot from a strategy centred around crisis management to a focus on long-term resilience.
According to interviews conducted by McKinsey in China, suppliers, manufacturers and customers have proactively shared supplies, including PPE, idle transport assets and personnel, giving mutual dependence. Manufacturers have simplified offerings, limiting them to reduced numbers of locally sourced lines.
The common thread to helping recovery, centres on collaboration and good communications across brands and their suppliers. This also presents opportunities to:
- Reduce the number of choke points in your supply chain due to mismatched regional availability. For instance, by mitigating shortages due to supply rationing or as insurance against supplier collapse.
- Actively manage your supplier qualification to ensure business continuity, maintenance of quality and safety standards, and enhancement of sustainability credentials.
- Demonstrate to your stakeholders and customers that you are upholding set standards and safeguarding your business for the long-term.
With these kinds of efforts, companies can set themselves up for greater success in the medium to long-term by doing right by their workers and customers.
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