Even though the COVID-19 outbreak situation is beginning to improve, as long as there is no vaccine available, significant uncertainty remains. This has led many organizations to feel stressed and create contingency plans to respond to the situation.
What is certain, however, is the massive economic impact, as businesses face supply chain disruptions, production delays, labor shortages, workforce losses, and other challenges.
If you are not ready yet, now is the time for procurement teams to start implementing measures to mitigate the impact of these events. Here are 5 risk-reduction strategies that can be applied:
1. Establish a Risk Management Task Force
If you already have a risk management strategy, it ensures that business operations can continue smoothly. If not, now is the time to set up a dedicated team to understand, assess, and mitigate the risks you face.
This cross-functional team should have clearly defined objectives, with the organization monitoring progress carefully. Its main responsibilities include protecting employees, analyzing financial impact, preparing contingency plans, ensuring accurate demand planning and supply chain continuity, and developing appropriate marketing and sales strategies.
For example, the financial analysis team needs to develop scenario models of potential impacts, isolating factors affecting costs and revenues, while ensuring liquidity to withstand disruptions. Meanwhile, marketing efforts should focus on creating new go-to-market strategies, pricing, and promotion approaches to help the business continue. For instance, in the automotive sector, product demonstrations have shifted from showrooms to online video platforms.
2. Focus on Supply Chain Risks
Perhaps the most important role of this team is to monitor supply chain risks and strengthen resilience against failures caused by various scenarios.
Having a continuous risk monitoring program that focuses on maintaining supply chain continuity should be a standard practice for established businesses. If you do not yet have a program or don’t know where to start, ask yourself:
– Do you have end-to-end supply chain visibility to quickly identify potential disruptions?
– Have you segmented your supplier base and categorized critical supply chain elements that could be impacted differently?
– Are you monitoring key suppliers beyond just financial or general economic capabilities?
– Do you have risk control measures to identify and assess key risks by category?
– Have you established action plans for raw material or product supply impacts, broken down by category and supplier?
By continuously monitoring various risks and having pre-prepared contingency plans, the impact of supply chain disruptions can be significantly reduced.
3. Secure Backup Suppliers and Networks
These contingency plans include sourcing backup suppliers and logistics networks. Fortunately, there are many ways to do this.
For example, you can shift your supplier base to countries with lower costs that are less affected by the outbreak, diversifying and reducing dependence on troubled markets. Currently, manufacturers in the U.S. and Europe are sourcing raw materials and products from low-cost regions like India, Vietnam, and Turkey. Organizations with multi-country sourcing strategies face lower production risks.
Additionally, consider your logistics network. For instance, in China, road closures and an 80% reduction in cargo flights made less regulated rail transport an increasingly popular alternative. Even as the situation improves and some ports reopen, it is important to continuously monitor transportation routes and evaluate alternative shipping methods.
4. Anticipate and Respond to Customer Behavior
Ask yourself how demand may change. Will it affect certain products? Will there be stockouts? Can you adjust products to meet shifting demand accurately?
Social distancing and isolation have changed consumer purchasing behavior, with increased reliance on online retail. Strengthen your online business, focusing on quality and delivery times.
Also, remember that no one knows your customers better than they do themselves. Maintaining continuous communication with them is crucial during supply chain disruptions.
5. Leverage Digital Systems and Automation
In modern business, digital systems and automation provide key benefits, and this has proven particularly true during the pandemic.
Digitizing the supply chain enables real-time event visibility, allowing you to monitor suppliers under adverse conditions and mitigate risks before they cause serious impacts.
Similarly, digital solutions, analytics, and data science can model future scenarios, identify behavior patterns, and predict customer trends.
Automation is also critical. With global labor shortages due to illness and isolation, finding ways to automate production lines is essential for survival. A recent survey of companies in affected regions found that 78% reported insufficient staff to fully operate production lines, and 41% indicated that within two to four weeks, workforce shortages would become their biggest challenge.
What Lies Ahead
The near future will be a period of rapid market fluctuations, with numerous variables and factors to consider. The key is to find ways to gain accurate, timely insights about what is happening around you—not just tomorrow, but three months from now, and then another three months after that.
