Effects and Lessons Learned from COVID-19
Border closures, business interruptions, consumer trend changes, and social distancing have been brought on by the global COVID-19 pandemic. This has forced industries to rethink their business model, and many are now faced with supply chain challenges. Businesses will need to address these challenges through quick adaptation in the short-term. They will also need long-term supply chain management strategies and solutions to stay relevant and survive the new business and economic environment.
Supply chain disruptions have been felt during the first quarter of 2020. Many factories have shut down and freight capacity to deliver goods has significantly decreased, resulting in average shipping delays of one to two weeks. Additionally, there is a lot of uncertainty around consumer demand as some customers have cancelled orders while others urgently need the goods.
The problems and disruptions presented by this global pandemic were unexpected, and no business or industry was fully prepared, creating enormous challenges at all levels. COVID-19 has exposed weaknesses in global players at both ends of the supply chain structure. These challenges must be addressed in each business entity, not by a single person or department, but by a cross-functional strategy. Companies will need to implement supply chain risk management, including both short term and long-term solutions to mitigate the impact of current and future disruptions.
1. Support & Protect Your Employees
The most important asset any entity is its own employees. Companies need to prioritize the support, education, and safety of their office, manufacturing, and distribution staff. The status quo is no longer an option; therefore, companies must prepare for alternative work arrangements for employees, especially if they fall within the “at risk” category. Clear and constant communication from management will be required until normalcy returns. This communication must explain alternative work arrangements, how to identify virus symptoms and spell out specific company policies implemented to help employees.
2. Cross-Functional Strategy
Businesses need to appoint a project manager reporting directly to the CEO. This manager will lead and organize the efforts and strategies of all departments in order to properly plan and execute a cross-functional strategy. In conjunction, each department should appoint a member that will lead and execute the strategy within their respective department.
3. Stabilize Suppliers and Customers
Companies need to evaluate and determine who the top players are on both ends of the supply chain process and focus the available resources in understanding and communicating with major players and investing in alternate channels of distribution.
4. Look for Alternate Suppliers
If not done before, this is the time to move quickly to source backup suppliers, alternate inventory and capacity. The efforts should include identifying regions with low impact from the pandemic, understanding the suppliers in those regions and activate additional supply sources.
5. Cash Flow and Liquidity
A big part of the cross-functional strategy is creating cash flow models with different scenarios that will need to be followed and implemented across the organization. Business entities need to focus on collections and diligently work with vendors to extend payables terms. Companies should apply for the CARES Act funds in order to secure low-cost funding for business operations.
Long-Term Supply Chain Management Strategies
Supply Chain Risk Management (SRM)
Companies must implement risk assessments into the supply chain management and develop thoughtful continuity plans. These strategies should be designed to review current supply base for economic, political, and geographical risk analysis, and to understand key suppliers’ ability to meet supply requirements under disruptive environments.
Additionally, companies should strategically develop multiple sources for key inventory or raw materials. An intrinsic part of SRM is to develop a new approach to maintaining inventory levels, taking into consideration strategic goods, possible disruptions, and consumer demand.
Digital Supply Network Model (DSN)
Instead of a linear supply chain process, companies should develop a DSN where entities are connected to the full supply network. This will enable end-to-end visibility, collaboration, responsiveness, and optimization. The DSN model should be designed to anticipate disruptions and should have the ability for quick reconfiguration if needed.
Expert virologists and government agencies agree that pandemic events like the one we are currently experiencing might be reoccurring and worldwide economies will need to expect and adapt—at least for the next few years. Therefore, it is imperative that companies implement long-term strategies through SRM design to mitigate disruptions and utilize a DSN model to maximize the opportunities in resource savings, flexibility and efficiencies brought on by new technologies.
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About the Author
Carlos has over 20 years of experience in finance, accounting and operational leadership roles, including positions as CFO and Controller, across multiple industries such as beauty, manufacturing, e-commerce and entertainment. Throughout his career, Carlos has developed and mentored strong finance and accounting teams, implemented financial systems and created processes and internal controls for start-ups and well-established companies. He has extensive experience in reporting, forecasting, budgeting, cash management, due diligence, SOX compliance and financial analysis. He began his career with Deloitte in accounting outsourcing services and moved to audit where he served a variety of client industries. Prior to joining 8020 Consulting, he was CFO at Sultra Corporation and before that, Director of Finance at ghd Professional North America. Carlos holds a Bachelor’s of Science Degree in Accounting from Universidad Tecnológica de México.