As the COVID19 pandemic disrupts trade and impacts businesses and effects the global economy, everyone is looking out for a way to minimalize the effects. keeping that in mind McKinsey has released a detailed analysis of the supply chain problems and how we can counter it.
Let’s take a look at it in the next infographic
These are the main areas where disruptions can occur as pointed out by McKinsey.
Now, check out how you can tackle those entry points.
Immediate Action (2-4 weeks)
Understand exposure
1. Determine truly critical components and understand risks of tier 1 to tier 2 suppliers onwards
2. Define current inventory buffer and locations!
3. Identify origin of supply (.e., Hubei Wuhan) to identify severity of risk
4. Conduct scenario planning to understand financial and operational implications in prolonged shutdown
5. Work with S&OP to get 3-6 month accurate demand signal segmenting likely to be impacted demand to determine required supply
Tackle Action to Anticipated Shortage
6. Look to ramp up now on alternative sources if supplies are in Hubei and accelerate exploration of additional options
7. Change mode of transportation to reduce replenishment lead-time and pre-book air freight / rail capacity as required by current exposure
8. Optimize limited production by prioritizing for items that would support better healthcare delivery and outcomes
9. Collaborate with all parties to jointly leverage freight capacity, new/alternate supply sources, etc.
10. Watch for extending lead times to gauge performance and capacity against supplier promises
11. Use after sales stock as bridge to keep production running
Ensure resources required to restart
12. Work with supplier to source personal protective equipment for production lines operating in affected markets (e.g., glasses, gloves and masks)
13. Engage with crisis communication teams to clearly communicate to employees on infection risk concerns (e.g., disseminate facts about virus from credible source) and work from home options
14. Consider short-term stabilization for suppliers (e.g., low-interest loan) to allow for a faster restart
Understand additional options
15. Determine what portion of supply can be swung to another site if shutdown persists based on sourcing strategy (single, dual, multi)
16. Identify ways to expedite qualification process and/or insourcing
17. Determine possible geographies and supplier shortlists in case alternate supply is required
Mid-term Action (2-4 months)
Continuously improve material supply stability
- Evaluating alternative sourcing options for all the materials impacted -availability of suppliers, additional cost due to logistics, tariffs, estimate of price increase of the components
- Enhance the demand verification process to correct inflated demand to mitigate the bullwhip effect
- Provide continuous support the midsmall size tier 2-3 suppliers in financial troubles
- Assess regional risks for current and backup suppliers
Kick off designing resilient supply chain for the future
- Establish a supply chain risk function
- Digitalize process and tools to integrate demand, supply, and capacity planning
- Trigger the new supply network design for resilience
- Codify the processes and tools created during the crisis management as formal documentation
- Convert war room into a reliable risk management process
Build collaborative relationship w/ external partners
- Work with government to explore
- potential tax benefits
- Actively engage investors and other stakeholders to build transparency on the situation and get help
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Source: McKinsey
