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How to rebound from the supply chain disruption caused by this pandemic?

All companies have been disrupted by this pandemic, either positively or negatively.

This pandemic is unique in many ways: 1) it is across the world 2)it affects all business lines 3)it affects these differently 4) it is unpredictable with regard to both its start and end date. However, every major event, is also a unique opportunity.

The first step to orchestrate a rebound is to take stock. How was your organisation affected by the event? There are internal dimensions and external dimensions to consider: Such as; how did the event impact your organisation’s abilities to operate normally or efficiently ? How did the event impact your marketplace ? How will the event impact your company’s success in the future ?

  1. Human Resource wise
  2. Capital wise
  3. Supply Chain wise
  4. Operations wise
  5. Consumer and Customer wise

It is clear that companies whose businesses are less international, mostly online, mostly catering to basic human needs such as food, drinks, medicines, in services to consumers as opposed to customers etc… fared better than businesses who are more international, cater to non-essential needs and which require brick-and-mortar operations or service brick-and-mortar locations…

This first step will allow you to assess the likelihood and the impact which any future “pandemic” like event might have on your business in general. History repeats itself but always with major variations.

The corollary to your risk profile is your risk appetite. An organisation needs to quantify both with a certain degree of accuracy and/or confidence.

The exercise will provide an indication of the weaknesses and how to treat these. The choices are 4:

  1. Accept: because there is no remedy or the remedy is worse than the pain e.g. costs more than the losses incurred temporarily or there is no practical/reasonable way to deal with the risk. An example is increasing finished product stocks to sustain a break in supply chain for up to 6 months is neither reasonable nor cost efficient. It is worthwhile to provision for these “accepted” risks or “forward-looking risk provisioning”.
  2. Avoid: because the risk is so large that the company will not be able to accept the losses derived from the event. A good example in a pandemic is to procure indispensable inputs ideally from suppliers in geographical vicinity as opposed to from long supply lead-time countries/suppliers, so avoid suppliers in the far distance for critical supplies and look at recouping the on-cost through other means and in other areas which are less risky to the business’s survival.
  3. Transfer: this is only an option, if the entity you transfer to risk to does not have the same risk profile as you and a larger risk appetite. Since a pandemic such as this one, is an act of god, it is unlikely that contractual clauses will go a long way to protect a company, but insurances and or share holding in major suppliers to secure privilege/control in supply could make all the difference.

Finally, the fourth choice is mitigation. Mitigation in this context not thought as a preventative measure but rather as a remediation, once the event occurred. Clearly, companies have been affected by:

  1. an acceleration, change or drop in demand which affects production/delivery planning and the supply chain which most probably led to a drop in quality and reliability.
  2. a limitation to the workforce availability to be physically present at operations or at the office, hence production output has probably dropped or increased under “duress” such as finding temporary workers who haveĀ  less training and less experience…
  3. an erosion of income (or an increase in income) but certainly a change in income pattern for most. While supermarkets have certainly increased their sales, restaurant chains have most probably experienced a sharp drop in sales…
  4. Customers and consumers which are less predictable, demanding and probably more impatient than usual.
  5. Investments and projects which have to be delayed or cancelled as the future is uncertain and the present too demanding or accelerated to deal with the aftermath of the pandemic.

Companies depending on the situation they are in, need to either decrease their cost base, increase their productivity, accelerate their value cycle, they need to act both for the short and the long-term, ideally within an overall after pandemic strategy. Here under a few practical examples of what can be done short-term:

  1. Slash your business travel and expense, event budgets to reflect that some travel might be of limited value add.
  2. Renegotiate working hours and bonus agreements with workers aligned with company/marketplace fluctuations to retain your human capital.
  3. Reorient your workforce towards tele-working which in return allows you to cut your office operations budgets.
  4. Devote dedicated resources to implementing quick-wins in phase 1, to decrease the cost base within 6 months from the event.
  5. Digitalise wherever possible to automate your operations, enhance and deepen your visibility, widen your supply echo-system, be closer to where the demand is and be in a position to accelerate easier also in anticipation of the next major event.
  6. Work with your suppliers to align them with your strategy.
  7. Build a business continuity plan together with your staff, suppliers and customers based on your risk profile and risk appetite.

There is a good chance, that while this pandemic threw you off course, it provides for a better course for the future.

 

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