How to Mitigate Supply Chain Risks Caused by Coronavirus

The coronavirus crisis has affected businesses of all sizes, in all industries, on a global scale. Over the last couple of months, we’ve seen the business world turn into an unfamiliar landscape.

Companies have to adapt their business operations due to changes in demand, social distancing measures, and forced business closures. There is mounting pressure on companies ‘ supply chains with no end in sight for this outbreak and the resulting lockdown measures.

So how can you create effective COVID-19 policies, mitigate supply chain risks caused by this pandemic and see your business through to the other side of the global crisis?

How the COVID-19 Pandemic Is Affecting Supply Chains

Before you can mitigate supply chain risks caused by COVID-19, it’s important to understand exactly how the pandemic affects supply chains. You can then identify how your supply chain has been affected and how the pandemic may affect your business long-term.

Companies May Struggle to Keep up with Increased Demand

The coronavirus pandemic has thrown demand out of balance — for some companies, demand has shot through the roof, while others have experienced a drastic drop.

Some companies facing increased demand have managed to rise to the challenge and fulfil customer orders, but others have been unable to take advantage of increased demand. Some businesses simply don’t have the funds, inventory or ability to cope with an unexpected and dramatic increase in orders.

As a result, many companies cannot meet customer expectations, and unhappy customers can negatively impact businesses in the short and long term. As a result, your professional reputation may take a hit, and your business may miss out on sales and the opportunity for business growth.

Others May Face Decreased Demand and Financial Difficulty

Companies facing a drop in demand will need to cut back on supply chain costs where possible. There may be fixed supply chain costs, such as fixed contract payments, rent, leases and property taxes, that companies will need to continue paying regardless of demand. But variable costs will need to be reduced.

Cutting back on costs could reduce the quantity of material or inventory orders and potentially reduce the number of staff working for the company. However, by lowering order quantity, businesses can miss out on bulk discounts from suppliers and end up spending more by placing orders little and often.

Companies may then need to increase the price of products or services to compensate.

Many businesses may decide to use credit to fund their supply chain and fulfil orders, but this can create liquidity problems and cause additional financial strain.

Companies Face Several Challenges When Sourcing Materials

With people urged to stay at home and keep away from others where possible, many businesses have ceased operations to keep workers safe and comply with government advice and lockdown measures. So companies may find their usual suppliers are currently unable to supply materials or services.

Companies that rely on imported materials may also experience disruption to their supply chain, as governments worldwide have changed customs border processes. For example, the number of workers in these sections has been reduced drastically to adhere to the health measures. Supplies from those regions regarded as COVID-19 hotspots also need to go through several checks before allowing them into the country.

Stricter regulations and checks of imported materials mean many businesses are facing considerable delays in receiving shipments. And with factories shutting down around the world, some companies simply can’t order the materials they need.

For example, many industries rely on materials shipped from China, but thousands of Chinese suppliers have shut down, disrupting supply chains around the world. This has led to a situation wherein the demand for certain products is higher than the supply. As you’d expect, there’s a very high possibility of businesses dealing with inflated prices regarding various raw materials.

So, how can you, as a business owner, mitigate the risk of rising material costs? Well, for one, you can consider adding a clause in your contract that’ll protect you from such inflation.

A price escalation clause gives you the right to increase the price of certain materials by a given percentage, depending on the economic situation at the time.

With companies facing supply delays and shortages, they need to consider whether they may run out of inventory or be unable to order the materials needed to complete business operations.

Reduced Availability of Personel Has Made Fulfilling Roles More Difficult

All over the world, people are working from home where possible and self-isolating themselves if they have a condition that deems them vulnerable to the virus — or if they have symptoms of coronavirus. With many people taking this advice and staying home, companies are facing reduced numbers of staff.

Many contractors have also stopped working to protect themselves from the virus, so companies have a limited selection of contractors to award work to. They may not be able to find contractors with proper knowledge, qualifications or experience, and projects may be delayed, postponed or cancelled as a result.

Businesses may also be unable to hire the personnel they need to fulfil roles if they can’t keep workers safe.

Companies need to have the necessary personal protective equipment (PPE) for employees and contractors to complete tasks safely. But with many countries experiencing a shortage of PPE, it may not be possible for companies to provide the necessary protective equipment.

Reduced numbers of staff can disrupt the supply chain by causing delays. With fewer people available to complete services or manufacture, dispatch and deliver products, many supply chains are running a lot slower than usual.

How to Mitigate Supply Chain Risks Caused by Coronavirus?

With the current pandemic affecting supply chains in several ways, it can be challenging to know how to mitigate supply chain risks in these unprecedented times. So we’ve outlined several ways you can reduce supply chain risks caused by the COVID-19 outbreak and limit the disruption to your business operations.

Identify and Assess Current Supply Chain Risks

There’s no sense in implementing risk management strategies if you don’t know exactly what risks you’re up against.

While we’ve outlined how this pandemic affects supply chains, every business is different and maybe up against various supply chain risks. So, before you start taking actions to mitigate risks, conduct a thorough risk assessment of your supply chain.

Consider how current events could affect your ability to source materials, manufacture products, and deliver products or services to customers. As earlier mentioned, it’s important to understand this to know how and when to adjust your contract agreement.

Plan Ahead and Communicate Potential Supply Chain Disruptions

While it’s easy to become wrapped up with the imminent impact of the pandemic on your business, it’s crucial you also plan.

Consider how current events will affect your ability to complete future projects or orders.

If existing projects are delayed, will this cause a chain of delays and affect your ability to provide products or services further down the line? If you or your suppliers are having to increase the price of products or services, how will this affect future sales?

Plan and consider the long term implications of the coronavirus outbreak. And don’t forget to communicate with your suppliers, clients, customers and contractors. Together you may be better able to come up with effective solutions to mitigate supply chain risks.

Identify Alternative Sources of Supply

During these uncertain times, you never know which suppliers might have to cease operations. So even if your current supplier is still delivering materials or services without any disruption, it’s a good idea to identify alternative suppliers as a backup.

You can reach out to suppliers, let them know your situation, start building a relationship and even begin hypothetical negotiations.

It may be a good idea to consider more local suppliers located in the same country as your business or neighbouring countries. This can help you avoid delivery delays or issues with customs processes. You could also select backup suppliers in different geographical locations in case any trade restrictions are introduced.

With alternative sources of supply readily available, you can continue business operations without disruption if your current supplier is suddenly unable to fulfil your requirements.

Make Sure You Have Safety Stock (An Inventory Buffer) Set Aside

In case of any disruptions to your supply chain, it’s vital to have safety stock (an inventory buffer) set aside. With extra stock, you can continue meeting customer demands in the event of a supply delay. And if you need to change supplier, you’ll have enough stock to see you through the transition.

However, that’s not to say you should start using your safety stock at the first sign of trouble.

Keep your inventory buffer set aside for emergencies, and if any issues arise with your supply chain, try to find solutions before dipping into it.

Go above and beyond When It Comes to Protecting Workers

For your supply chain to continue running smoothly, you need to make sure you protect workers who play a part in the supply chain from harm and ill-health.

Therefore if workers are injured or go off sick, this can have a massive impact on the speed of your supply chain. Now especially, workers in all industries are at risk of ill-health — the coronavirus can spread quickly amongst colleagues and those working on the same site. So make sure you provide adequate PPE and enforce social distancing measures as best you can in the workplace.

If you only have one shift in your company, this could be the best time to introduce double or even triple shifts. This way, you’ll have a limited number of employees working at any given time and still meet your expected productivity levels.