As Covid-19 continues to spread at pace, there is still a great deal of uncertainty for organisations feeling the strain, who are responding by putting in place contingency plans.
What is certain, however, is that the economic impacts are going to be huge – with businesses battling disrupted supply chains, production delays, labour shortages, lost custom, and more.
So, if you haven’t already, now is the time for procurement teams to start implementing measures to minimise the impact of these events. Here are five risk mitigation strategies functions can apply, based on past collective experience.
- Establish a specialist risk management team
If you already have a risk management strategy in place to ensure business continuity, here is where it comes into its own. If not, now’s the time to set up a team dedicated to understanding, assessing and mitigating the risks you face.
This cross-functional response team should have clearly defined goals and the organisation should monitor its progress carefully. The group’s primary responsibilities should be to protect employees, produce financial impact analyses and contingency plans, accurate demand planning, supply chain continuity, as well as optimise marketing and sales strategies
It sounds like a lot. It is a lot. But every element of this is vital.
For example, financial analysis teams need to develop impact scenarios to identify factors that will affect costs and revenue – and ensure there is sufficient liquidity available to the organisation to survive the impacts.
Meanwhile, marketing efforts must focus on innovative go-to-market strategies, as well as pricing and promotional tactics to help keep business coming in. In the automotive industry, for instance, product demonstrations have moved from showroom floors to online streams.
- Focus on supply chain risk
Perhaps the most important role of this team is to monitor supply chain risk and improve resilience.
Having an ongoing risk-monitoring programme with a focus on driving supply chain resilience should be standard practice for mature businesses. If you don’t have one in place, a good place to start is by asking the following questions:
- Do you have holistic supply chain visibility to ensure you can identify potential disruptions promptly?
- Have you segmented your supplier base and identified the key categories in your supply chain that could suffer as a result of different disruptions?
- Are you tracking your strategic suppliers – beyond simple financials or economic performance?
- Do you maintain a structured risk dashboard to identify and assess critical risks by category?
- Do you have defined action plans in the face of supply impacts by strategic category and supplier?
If you continually monitor different types of risk and put contingency plans in place ahead of time, the impacts of supply chain disruption should be significantly lower.
- Find alternate suppliers and networks
Those contingency plans will almost certainly include finding alternative suppliers and transportation networks. Fortunately, there are lots of ways to approach this.
For instance, you could shift supplier bases to low-cost countries less affected by the outbreak to diversify and reduce reliance on struggling markets. Right now, for example, manufacturers in the US and Europe have started sourcing raw materials and goods from low-cost destinations such as India, Vietnam and Turkey. As you’d expect, organisations with established multicountry sourcing strategies are facing lower production curtailment risks.
The other thing to consider is your logistics network. In China, for instance, road closures and an 80% drop in scheduled cargo flights briefly made rail freight the least restricted mode of shipment. The situation is now improving, with some ports reopening, but it’s important to continually monitor the logistics landscape and assess alternative modes of transport.
- Anticipate and respond to customer behaviour
Ask yourself, how could demand be disrupted? Will it affect some products more than others? Will you experience cutbacks or surges? And can you alter supply to accurately match demand shifts in each of these instances?
Self-isolation and social distancing have prompted consumers to change their buying patterns, with swathes of people relying more on online retail. It is wise to strengthen your online presence, as well as focus on quality and delivery timelines.
It is also worth remembering that no one knows your customers better than your customers, so maintaining a constant dialogue with them is important during this disruption.
- Digitise and automate processes
In modern business, digitising and automating processes can always provide a significant advantage. And this is especially true right now.
As part of a long-term solution, digitising supply chains can provide vital, real-time visibility into events, allowing you to track suppliers in adverse situations and mitigate risk before it has a detrimental impact.
Similarly, digital solutions, analytics and data science can be used to model future scenarios, identify patterns in behaviour and predict future customer trends.
Automation also plays a part here. With illness and self-isolation causing labour shortages all over the world, finding ways to automate production bases (where appropriate) could be essential to survival. A recent survey of companies operating in affected regions found that 78% of respondents felt they do not have sufficient staff to run a full production line. Another 41% stated that lack of staff will be the biggest challenge in the next two to four weeks.
Our near future will be a time in which market conditions could change dramatically by the hour. With so many variables and factors to consider, it’s important to find a way to gain accurate and timely insights into what lies around the corner. Not just tomorrow, but three months from now. And, then, three months after that.