Coronavirus: A Wake-up Call for Procurement and Supply Chain

COVID-19, more popularly referred to as Novel Coronavirus/Coronavirus, is creating havoc all over the world. While we are not sure how long this unforeseen circumstance is going to continue, one thing is quite evident — this crisis has a lot to teach the procurement and supply chain fraternity.

Before we delve into the insights, let’s look at the immediate measures your team can take to keep the situation under control.

Impact on European Industries

In Europe, manufacturing industries that heavily relied on suppliers from COVID-19 affected areas seem to be the worst hit. According to an HBR article, “the world’s largest 1000 companies deal with more than 12,000 facilities in these regions that include China, Italy, and South Korea” 1. As more and more data emerge, these industries have taken the brunt of it: Automotive, Industrial and Heavy Machinery, Consumer Goods, Consumer Electronics and Semiconductors, Life Sciences and Medical Equipment.

For instance, electronics manufacturer MTA stated that “all the subsidiaries of Fiat Chrysler (FCA) will shut down production if its 600 employees in Northern Italy are not allowed to return to work” 2.

On the other hand, some of Europe’s largest ports are impacted by Coronavirus too. For instance, the CEO of Rotterdam harbour states that “the number of departures from Chinese ports has decreased by 20%” 3. Also, the activity at the French port of Le Havre is expected to drop by 30% in the coming days 3.

Supplier Risk Management Insights from Coronavirus

• Relying on a single supplier or single geography for all sourcing needs might prove to be risky. While it is common practice to do so to meet cost targets, it can turn ugly during such scenarios ending up in a much higher cost of corrective measure. For instance, Fiat Chrysler Automobiles NA announced that it is temporarily halting production in its Siberian unit as it cannot source enough parts from China3.
• It is advised organizations monitor their suppliers across all tiers thoroughly. Suppliers across tiers are interdependent, and it is the organization’s responsibility to keep track of all these suppliers.
• Application of risk management principles to all tier-1 and tier-2 suppliers, as well as establishing alternate supplier relationships in advance, would reduce the damage in case of a crisis. Local suppliers could be given a chance too, as they offer greater transparency and reduce turnaround time.
• Organizations can make the best use of advanced technologies like AI and NLP to build a robust supplier monitoring system. These systems offer greater visibility and possible warnings when a crisis is in its early stages.

It all boils down to the basics of Supplier Risk Management and how efficiently an organization can use its supplier data to sense dangers, gauge the impact and look for corrective measures in a short span of time and avert the looming crisis.

COVID-19 is indeed a wake-up call for supply chains which often tend to ignore supplier-related risks.