How to tackle the COVID-19 supply chain ‘triple challenge’
3 April 2020: The impact of coronavirus on global supply chains is “unprecedented”, but finance professionals dealing with the fallout have a key role to play in helping companies navigate their way through.
Nick Wildgoose, a qualified accountant and former chair of the Supply Chain Risk Leadership Council, told a Business and Management Faculty webinar that he has never encountered anything like what he is calling the “COVID-19 triple challenge”.
This triple challenge is a potentially lethal combination of supply chain issues, the implications of financial and legal consequences, and huge changes in demand – particularly in the short term.
As an example Wildgoose, a former specialist adviser to the World Economic Forum on systemic supply chain risk, pointed to Bangladesh. The southeast Asian country has had $3bn of orders in its textile industry cancelled in the past few weeks – a “significant shock” for the country in one of its major export markets.
In another sobering statistic, he said that there were typically some 150 million Chinese tourists travelling the world spending some $20-30bn. The loss of this income constitutes a huge hit to many economies.
The multifaceted nature of the COVID-19 triple challenge makes it hard to deal with, but finance professionals have a key role to play in helping companies navigate their way through these challenges as “the conductor of the orchestra”.
The starting point is what Wildgoose dubbed a “prioritised journey of improvement” when looking at the supply chain, where businesses must focus on their most profitable or essential product or services first.
Using manufacturing as an example, even if some items may be low-cost, if you can’t get hold of them, you can’t get the product out to the end user.
The webinar, first delivered on 1 April 2020, covers three core areas, beginning with the current situation and its implications from a supply chain perspective.
It then focuses on what steps to take now to protect companies in terms of the ongoing impact on business performance, before looking at how to better prepare for the next supply chain shock, whether from climate change, geopolitical issues or reputational impacts.
Many major players are often caught out by supply chain choke points much further down the line in tier two or three suppliers. Risk tends to increase in the lower tiers of the supply chain, where they are typically less well understood.
Wildgoose highlighted several immediate action points for procurement and operations teams including:
- prioritise high-risk supply sources by value
- perform an analysis of the supply chain beyond tier one suppliers
- review your approach to inventory and demand forecasts
- keep communication channels open with key suppliers and customers
- seek out alternative sources of supply and transportation routes.
For the longer term, he suggested carrying out lessons-learned debriefings and spreading sourcing across multiple suppliers in different geographies, including more local points of supply.
And to mitigate against future risks, review contract terms, especially force majeure clauses.
Looking forward to a post-COVID-19 world, businesses should also try to better understand their own financial and demand-driven situations, while ensuring that there are clear and open lines of communication with their critical suppliers.
They should also try to develop contingency plans around alternatives, appreciating “how important you might be to relevant suppliers”.
Finance professionals looking for a deeper insight into minimising the impact of COVID-19 on their supply chain can watch the 60-minute webinar on demand by clicking here.