Building a supply chain in the crisis period

Building a supply chain in the crisis period

Faced with the terrible impact of the current Covid-19 epidemic, the economy in most countries is in great turmoil, businesses are in trouble. This situation is forcing businesses to have a new strategy to deal effectively with the crisis, which within this article would mention the supply chain issue.

Developing a common supply chain reaction during an outbreak of disease is extremely difficult when its scale and growth rate is almost out of control. However, there are measures that businesses can take even without adequate preparation. A number of solutions have been offered by supply chain expert James B. Rice, MIT Center Deputy Director, for reference on building appropriate supply chain strategies during this period.

Firstly, let's start with human resources

Paying attention to the well-being of our employees by human resources is paramount. The companies that made the fastest recovery after Hurricane Katrina in the US in 2005 were the ones that tracked all their employees scattered across the southeastern country. Procter & Gamble even creates a highland staff village with housing, food, and advances for employees and their families. With the support and protection of employees in a crisis, businesses will gain loyalty and dedication from this resource.

Second, maintain a necessary skepticism

Accurate information is difficult in the early stages of emerging disasters, especially when governments are trying to keep society from panicking. Because of this, reports of impacts tend to be optimistic.

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However, local people can be a more valuable and reliable source of information, whereby local liaison is needed for additional sources of collation.

Third, run contingency scenarios to assess the potential for unintended impact

Taking the crisis from the current Covid-19 epidemic, China's influence is so broad that it has significant implications for businesses involved in its supply chain. In this case, it is necessary to carry out contingency plans to overcome the crisis. For example, in 2005, Hurricane Rita hit Houston and western Louisiana in the United States, causing deactivation of refining assets in the region. This has a major impact on companies producing packaged consumer goods due to a shortage of oil-based packaging that has caused a cut in the supply of related materials. However, many companies quickly shifted to redesigning old-style paper and cardboard packaging thereby overcoming the crisis.

Fourth, create an emergency operations center - EOC (Emergency Operations Center)

Most organizations today see the benefits of an emergency operations center (EOC). But in order for them to be more efficient, businesses should build EOCs at the plant unit level, with predefined action plans to communicate and coordinate among departments in the business as quickly as possible... The roles of functional departments, protocols for communication and decision making, as well as emergency action plans involving customers and suppliers should be clearly defined.

Fifth, know all the important suppliers in the field of business

Businesses need to set up a network of suppliers from "upstream" to the direct floors they are dealing with. Practical lessons from previous crises have shown that companies that do not do this are less likely to respond well when a crisis breaks out. For example, after the 2011 earthquake in Sendai in Japan, it took weeks for many companies to understand their weak response to a disaster because they didn't know which upstream suppliers to replace. to replace existing suppliers when they are paralyzed.

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If the company's supply chain is too dependent on a supplier, the risk is higher. The disaster in Sendai also highlighted this issue. For example, Hitachi has produced about 60% of the global airflow sensor supply, an important component for automakers. A shortage of these items has forced some carmakers to shift to installing only the remaining airflow sensors for their most profitable product lines.

Sixth, review how the supply chain design

Many large companies around the world have designed their supply chains based on the assumption that materials flow freely around the globe, allowing them to source and produce products at low-cost locations. Best. But much of the volatility that has taken place, from Brexit to the US-China trade war and now the Covid-19 epidemic crisis, has challenged the validity of this assumption.

Specifically, the global Covid-19 pandemic revealed the gap of having too many supplies at one point. The world needs a new kind of design in such a way that companies quickly reconfigure their supply chains to respond effectively to trade policies and the impact of a global pandemic.

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Businesses can use two directions to redesign their supply chains. First, redesign with second sources, preferably a second source outside the main source area. Although this supply chain design reduces risk, it is subject to higher management costs, quality monitoring, and other costs. In addition, the economics of scale varies according to the amount of supply allocated to each supply.

Second, redesign the use of local sources. By this design, a company has manufacturing facilities with local supplies in each of its main markets. Like the above option, this direction also helps businesses distribute risk but requires higher conversion costs, in return, lower shipping costs.

It is difficult to foresee the emergence and impact of global crises such as the outbreak of Covid-19. However, companies can mitigate their impact by proactively developing strategies for developing global supply chains taking into account the worst-case scenarios. The right strategies for the supply chain will be a solid foundation to help businesses overcome the crisis and sustainable development.

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