As the world confronts COVID-19, companies need to become conscious of transformations to the global supply chain model. China’s dominant role as a supplier has exposed existing vulnerabilities in distribution networks. Continued pressure on supply will continue to influence response efforts from both federal and state governments, such as the relief legislation recently passed by Congress. Several regions in the U.S. have implemented increased employee safety and security measures by putting limits on the number of employees permitted to be on premises and classifying certain industries as “essential.” This leaves businesses to find the best maneuvers to sustain operations, serve their communities, and protect their employees.
Travel restrictions continually update, causing organizational planning to not only be reactive, but also become proactively engaged in ensuring business can navigate broader response efforts. Many companies will begin to leverage digital supply networks (DSNs) in order to confront a system that was not predicting this kind of disruption. Most operations will need to seek innovative ways to remain competitive while the dust settles. State requirements vary on which industries and services are deemed essential, which generally gives a business more bandwidth to have operations on-site. Even as conditions begin to normalize, businesses should be prepared to adapt to the fractured environment by implementing supply chain management strategies.
Implementation of a strategic risk-based plan will help your organization redefine priority to establish safeguards and consistency during a time of uncertainty. It is important for CFOs, advisors, and financial professionals to understand that even though this situation will not last forever, mediation efforts will perpetuate change even after state and local governments seek to resume business-as-usual. The following five considerations may help your organization manage the factors affecting supply chain distribution models.
Backup Supply to Secure Revenue
Identify additional sources for your top inventory (stock-keeping units or SKUs) that represent 75% of sales, and work to scale inventory for optimal cash utilization. Reactive modeling can change quickly as conditions begin to normalize and distribution networks become more diverse after the initial shock of restrictions begins to fade. It is important to create back-up suppliers that operate in different regions of the world. Keep in mind that it will take time for reallocation efforts to reset back to normal practices once states resume business-as-usual.
Assess Cash Impact
Understand the cash impact of extended shortages, as well as which customers will assess fines and penalties for late or incomplete shipments. Develop the key inventory contributors and work to structure plans to protect service levels. It might be the right time to leverage risk evaluation tools in order to diagram how changes to supply and modifications of distributions networks will translate into operational costs and reconcile existing liquidly. This will involve implementing a proactive strategy with regard to how your distribution networks will be changing throughout the year.
Modify Distribution Networks
Select alternative fulfillment third-party logistics providers and redistribute facility management as quickly as possible to account for strategic redistribution of supply. The Transportation Department’s Federal Motor Carrier Safety Administration (FMCSA) has currently lifted hourly driving restrictions for critical medical goods and food for emergency restocking, and has expanded its national emergency declaration to include fuel, paper products, and raw materials used to manufacture essential items. As government regulations adapt, so can your current practices to not only be responsive to change, but also proactive in creating a new model for success. To that end, this is the time to evaluate third-party logistics (3PL) options and a transition plan as part of your business continuity process.
Evaluate Fulfillment Models
Implement a revised ordering practice that emphasizes availability. It is important to analyze fulfillment models that have recently migrated to smaller and more frequent shipments to key customers. You can assess broader strategies in terms of returning to normal operations after an adjustment period is clearly established based on changes in regulation. Working with customers to more closely link to their potential forecast change is the initial step.
Develop Contingency Plans & Solvency Strategies
Recommend adjustments to upcoming product introduction such as timing a range of key inventory in order to adjust expectations and lead to a more successful launch. Timing is key especially when the situation continues to evolve. As the national conversation around the COVID-19 pandemic creates uncertainly, a risk-based plan will help you confront the situation creatively and change the conversation in terms of consistency for your organization.
What Comes Next?
While the topography of business operations has morphed, there is room for performance with necessary adaptation. Your business can remain solvent as operations change to meet unique demand, and may even stand to benefit by providing key insights into the fundamental design of your supply chain network. It is important to realize that while these maneuvers will require patience and critical examination of existing strategy, there are numerous ways to become resilient and create a risk-based plan.
Our practitioners are here to help. While the factors and regulatory practices of our current economic conditions are unprecedented, our professionals will be able to leverage their expert knowledge of industries to help you move forward.
We are actively monitoring the current regulations of various states in which we operate to determine how to guide businesses in their efforts to service their employees and communities.
For up-to-date information, please see our COVID-19 resource center.
Published on March 31, 2020
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