Procurement Processes and a Pandemic
Within our modern era of globalization, and inter-woven supply chains, the coronavirus pandemic is presenting an unforeseen set of challenges to address. The state of multi-factory and multi-country manufacturing is now teetering on shaky ground. If COVID-19, and the economic downturn, isn’t effectively mitigated soon, the supply of various items from cars to clothing to electronics and even oranges will falter.
With the breaking down of the global supply chains, many are calling for returning critical production of medical and tech supplies to the United States. Perhaps, another option is to increase the redundancy of supply chains by further diversifying suppliers and inventory moving forward. As a result, any future obstacles can be more easily managed.
With increased demand for specific items such as soap, hand sanitizer, face masks, ventilators, cleaning products, and more – retailers have done their best to serve their communities while drastically transforming how they run their stores and protect the health of their employees and customers alike. In many communities, the pandemic has already negatively impacted the economy and sources of income.
In these times, businesses are going above and beyond to manage their supply chains effectively and ensuring consumers have access to the goods they need. Yet, we have all seen the deluge of images conveying barren store shelves and out-of-stock items. Right now, it’s time to address the short-term fallout from the current health crisis. In this article, we will focus on steps you can take towards minimizing the challenges associated with COVID-19.
How COVID-19 May Affect your Supply Chain
Since this is a novel pandemic, there isn’t an exact method for determining how the coronavirus may impact supply chains but you could experience instances of the following?
- Materials: Shortages of supplies or materials from deeply-impacted locations.
- Workforce may face fluctuations due to illness, fear and/or quarantine.
- Travel, and shipping, may be limited due to newly-placed restrictions and decrease in demand for flights.
- Established logistics, and networks, may be upended due to capacity shortages and even labor shortages.
- Consumers are transitioning to online shopping en masse, for a larger percentage of their purchases, and this may be the existing reality moving into the future.
Now is the Time to Secure Demand
As network-wide stockouts increase for certain types of non discretionary goods, it’s critical to strengthen your relationships with co-manufacturers, consumer-packaged-goods (CPG) makers, and distributors. For the most in-demand products, you should hold daily conferences with suppliers to ensure comprehensive supply.
One way you can secure your supply is by limiting variety, for now, then increasing the quantities. In addition, it can help to be more flexible with your delivery windows and even your payment terms. Then redirect your employees and capital to the essential categories during this pandemic. Right now, it is very important to foster an environment of open communication with your partners.
If you are dealing with decreased demand and excess inventory of non discretionary goods, then perhaps you can sell to your distribution partners and also start working with suppliers who have adequate cash reserves.
Living in an unprecedented scenario requires long-term planning, as well. If you supply non discretionary goods then perhaps it might be time to shift focus and resources to 2021. Review your buys for next year, and revise the variety based on expectations of demand even after the pandemic is mitigated. Many of the changes the world has recently made will be long lasting.
Now that we are going through this crisis, it’s important to focus on how you can improve your supply chain to become more agile and responsive in the next crisis. Conduct a simulation test and develop a strategic response with action plans. There is no time like the present to create a network of alternative sources.
Being better prepared than the competition might even open new opportunities when the next disruption comes around. When the next disruption arrives, you want to be better prepared than your competitors. Figure out how to diversify concentrated supply chains with high value, and find alternate routes and sources.
If you want to limit any future disruptions, then your procurement processes must be more agile than ever. Surges in demand are cobbling excess capacity of specific non discretionary product demands. In fact, freight costs and trucking demand have skyrocketed. Not to mention, shipping rates have gone up. Now that you have experience with this level of disruption, what can you learn from it and how would you prefer to handle a similar disruption in the future?
It will take creativity to ensure you have the capacity to consistently stock your store shelves with the essentials. And, it will take a larger portion of your financial resources. One way to limit expenditures is by having suppliers ship directly to stores, as opposed to distribution centers. Next, you could decrease packaging and assortment complexity so that suppliers send same-SKU shipments to dedicated hub stores.
Product variety is less of a concern, consumers just want to ensure they have supplies of important products. So then, packaging and assortment simplification can help to improve shipping speeds.
Fix the Gaps
When extraordinary measures are needed, then more resources are concentrated on expediting shipments. But, if your company is prepared for a major disruption, will you have to pay premiums to secure adequate supplies or raw materials?
From a future-proofing perspective, what gaps are slowing you down and how can you fix them with the right people, processes, tools, and data? How can you align your procurement and business objectives to protect your organization from crisis events in the future? Think of how customer spending, and demand, will be affected in various crisis scenarios. Make time to prioritize research to get a comprehensive picture.
What are the Financial Implications?
You want to ensure your inventory is located logistically, strategically, and within easy reach. Moreover, it should not be located in areas that are heavily impacted. Then, work with your HR and legal team to determine any financial impacts for not providing reliable supplies to customers and how to guide your team members correctly.
Once we get to the other side of the COVID-19 pandemic, businesses will quickly fall into two categories: Those who have learned from the crisis and used those lessons to improve their procurement processes and those who like to gamble with their survival by not doing anything and hoping something like this will never come around again. Reviewing your supply networks, and making the right investments now, can ensure you don’t have to feel blindsided by the next crisis.