The imperative for resilient supply chains

Considering the threats that the new strain of coronavirus -- COVID-19 -- poses to human health, companies around the world are prioritizing the wellbeing of their staff by encouraging them to take actions such as less traveling and self-quarantining to help manage the virus outbreak.

Staff shortages are inevitably forcing businesses in key industries to scale back their operations. The result is a severe threat to global supply chains.

For instance, 94% of the Fortune 1000 companies are experiencing disruption to their supply chains as a result of COVID-19. Yet that disruption is probably just the tip of the iceberg in terms of the virus’ overall economic impact. In a recent news article, research firm Oxford Economics has warned that global economic growth could shrink by more than US$1 trillion now that the World Health Organization declared COVID-19 a pandemic. 

Disruption is the new normal

Deeply worrying as COVID-19 is, epidemics are just one of the many disruptive events that can hit supply chains unexpectedly, to the detriment of business performance.

For example, over the past decade supply chains have been disrupted by natural disasters such as the 2011 Tōhoku earthquake, which halted production for vehicle manufacturers in Japan. Supply chain resilience has also been tested by terrorist attacks and by civil unrest, such as the mass protests in Chile in 2019, which led to a slump in production at the country’s copper mines. Other threats to supply chains in recent years have included large scale cyber attacks, trade barriers and suppliers of essential commodities falling into distress.

Supply chain disruption is not just the consequence of a one-off “black swan” event such as COVID-19. It is a perennial risk to companies, especially in our highly globalized age where businesses commonly have long, complex and opaque supply chains. These traditional supply chain structures are fundamentally ill-equipped to cope with increasing numbers of unplanned disruptions.

Transforming supply chains

So, how can businesses boost the resilience of their supply chains? Fundamentally, they need to move away from having rigid, linear supply chains to operating within agile, networked ecosystems by focusing on five key areas: 

1. Assessment and strategy. Conduct an end-to-end supply chain risk assessment to stress test the supply chain, identify critical risk scenarios and define potential responses.
2. Capability build-out. Invest in key supply chain capabilities, including visibility and monitoring, alternative business operating models, alternative supplier sourcing strategies, network flexibility and agile planning.
3. Intelligence monitoring. Implement risk monitoring and reporting tools, as well as an early warning system that enables a rapid early response to risks or disruptions. Undertake new product risk assessments and look for changes in demand and supply. Conduct ongoing risk and controls assessments, including systems and facility risk and cyber reviews.
4. Operating procedures. Put in place a Plan B for disruptive events, covering operating procedures and responses to predefined supply disruption triggers, such as a natural disaster or terrorist attack. Work to ensure there is clear delegation of authority and decision-making and that external and internal communication protocols are in place.
5. Major crisis management. Put in place a crisis management framework for major events where predefined responses will be inadequate. This should be accompanied by governance procedures, a desired operating model and standard ways of working.

No one can predict the full social and economic impact of the COVID-19 outbreak – or, indeed, of any event with global impact. Nevertheless, it has served as a reminder to businesses that the risk of an unexpected disruptive event is ever-present and if they want to continue to serve their customers and communities during a period of disruption, they need to be proactive in their planning.

At EY, we are working with several companies to help manage the disruption that they face right now so that they can keep their supply chains up and running, both today and in the future. EY teams are helping them conduct business impact assessments, draw up supply chain continuity plans, and conduct tabletop exercises that explore the impact of moving people and/or processing to alternative locations.

These are steps companies can take now to help ensure their supply chains are transformed in ways that help them function effectively, even when stressed and stretched by unexpected global events. It’s not simply about protecting profits. The resilience of supply chains is critical to securing the health and wellbeing of people all over the world.

EYG no. 001261-20Gbl