The effects of the COVID-19 outbreak have generated extensive business continuity challenges for many organisations; at the forefront for many is the risk affecting suppliers’ delivery capability. There are many root causes for this, for example:
- Absence of key production and/or distribution personnel
- A change in prioritisation
- Production halts due to localised social distancing regulations
- Closed borders
When combined with optimised ”just-in-time” delivery and complex, global supply chains, these factors have swiftly led to significant effects not only at the operational-level, in terms of production disturbances, but also financially as organisations fail to deliver to customers, resulting in unavoidable revenue loss.
Clearly, organisations face short-lived challenges to their supply chain every day and effective Business Continuity Planning will deal with immediate problems. However, when faced with a significant and persistent threat, a close, detailed examination of the potential exposure to these disruption risks must be initiated. Based on our experience, we recommend conducting a three step review to mitigate supplier risks.
1. Identify your most critical resources and services and their respective suppliers.
- In order to prioritise appropriately, an initial consequence assessment of supplier disruptions from your operational, strategic and financial perspectives can be useful, as articulated in the template below.
- Review your consequence analysis, risk assessments and continuity plan and check if these suppliers’ risks have already been explored. If not – update!
2. Immediately make personal and direct contact with the prioritised suppliers and initiate frequent follow-ups.
- Clarify that mutual support between supplier and receiver in handling the situation will, undoubtedly, be of benefit to both.
- Relying only on ‘business as usual’ could be a mistake.
- It is key to understand how the supplier has assessed and is managing their operations within the context of the situation. What are the supplier’s key indicators?
- If your contract allows it, make a site visit with your own personnel or with local partners to inspect activities critical to your order/business.
- Continue close contact and mutual follow-up
3. Review your business continuity strategies to uphold operations during partial or full supplier disruptions.
- Existing stock and reserve stock capacity of critical products or raw materials (inhouse or at external partners’) must be examined and reassessed.
- Backup for single-source suppliers must be identified and alternative logistics must be analysed.
These steps highlight that managing supplier disruption risk is not exclusively a procurement department’s issue. Clearly, they could effectively coordinate activities and execute parts of them; however active support from other departments such as Production, Logistics, Risk/Continuity Management and Legal is essential for delivering an effective plan and appropriate response.
The simple template below could be used to map out a basic overview of supplier risks in regards to COVID-19.