‘Defcon 1’ for supply chain – how to manage coronavirus and implement digital change
The Digital Supply Chain Institute, a US research group focused on the evolution of supply chains in the digital economy, has recommended supply chain companies set up ‘war rooms’ to track and respond to the coronavirus crisis, and seek to implement automation and analytics technologies to manage exposure to future risks.
At writing, reports suggest 31,000 cases of coronavirus have so far been reported, and 640 people have so far died. Supply chain companies, facilitating international trade, are caught in the middle, as lines of trade criss-cross with the global spread of the virus. It is notable the likes of Ericsson and Amazon have quit Mobile World Congress in Barcelona this month.
More companies are likely to bail from the event, the biggest in the telecoms calendar, citing the same: fears for staff and partners, and further escalation of the crisis. But commercial trade does not stop, and smarter and more flexible supply chains are required. “The time for action, short and longer-term, is now,” said the Digital Supply Chain Institute.
It notes the backdrop of the US-China trade conflict, which has forced supply-chain companies to look to countries other than China for key elements of their supply chain, anyway, because of tariff issues, and concerns about higher production costs and limited IP protection. But the new coronavirus makes this global review of supply chains urgent.
“Global companies that manage a substantial amount of their supply chain in China are acting like it’s Defcon 1 event. And well they should,” said the Digital Supply Chain Institute. It reckons “almost all” the companies it works with have set up a supply chain ‘war room’ to assess the crossover of their trade lines with virus outbreaks.
These are run by supply chain execs, with counsel from all departments. As well as counting costs and legal repercussions, they are focused on minimizing the impact of reductions in parts, products, and services, and changing product launches, accordingly. Importantly, they are seeking to develop alternative supply sources, and increase flexibility in their supply chains.
The Digital Supply Chain Institute said companies are seeking to learn from the SARS epidemic in 2003. “But the speed of infection is higher and death rates are uncertain. It is also true that the supply chain elements based in China are much, much higher than during the SARS epidemic,” it said, noting as well SARS took 20 months to vaccinate against.
The supply chain has many difficult months ahead. New digital technologies, allied with clever strategy, can buy some flexibility in terms of trade and operations. That is the conclusion, said the Digital Supply Chain Institute. “Increased automation, 3D manufacturing, and other technologies [can] make movement easier,” it said.
The Digital Supply Chain Institute has drawn up a three-step action plan for short-term action, and a four-step plan for longer-term change – and, indeed, digital transformation – for when the immediate threat to supply chains from the coronavirus has abated. These are listed below, quoted in full.
“Our advice is to treat the coronavirus supply chain impact not as an abnormal exception, but as an expected occurrence given a world where political disruptions, health issues, technology advances, and climate change are all happening at the same time,” the institute said.
What to do now – war rooms and audits
- Set up a cross-silo war room and appoint a respected supply chain leader. The war room should report to the company executive committee.
- Establish risk exposure in terms of selling into China and the presence of supply chain operations in China. This should include a detailed inspection of tier 1, 2, 3 suppliers, and their risk exposure.
- Develop a battle plan that takes into account demand, people, technology, and risk, and implement with speed.
What to do next – nomadic sourcing and tech
- Implement ‘nomadic sourcing’. The supply chain should be able to rapidly shift to other locations in order to preserve value for your customers. Sometimes the shift will be driven by labor costs, other times by trade conflicts.
- Execute a digital supply chain plan that calls for increased automation, 3D manufacturing and other technologies that make movement easier.
- Develop an ecosystem of suppliers that have a common commitment to meeting your requirements, even in the face of challenges.
- Make sure that your supply chain leader reports to the COO, CEO, or Executive Committee. They have a huge impact on your success and on your customer’s happiness.