Supply Chain Risk Management Post COVID-19: How to Respond

• Create contingency plans: Start with scenario planning strategies for different demand environments
• Mitigate supply shock: Work closely with existing suppliers while diversifying the supply base 
• Manage demand volatility: Manage panic buying situations while taking on a responsible retailer role
• Make work safe: Invest in protective gear for supply chain workers and communicate via apps to manage time, availability and safety

While the initial shock of the COVID-19 pandemic has worn off in many countries, its domino effect on the global supply chain has continued to cause massive disruptions across industries and regions.

How can businesses face a global supply chain crisis and prepare for other catastrophes?

Understanding the full scope of a crisis, identifying potential outcomes, and implementing risk management strategies can help organizations feel more confident in their growth and satisfy customer needs at the same time.

Most importantly, acquiring data and modern technological tools can create visibility across the supply chain and, in turn, inform preparation for unexpected events.

How has the pandemic affected global supply chains?

In 2020, the global economy and international markets plunged as the coronavirus spread from China— the world’s second-largest economy—to other countries in Asia, Australia, Europe, the Americas and the Middle East. Policies intended to prevent the further spread of the virus, which include travel restrictions and quarantines, had unintended consequences of disrupting international supply chains, suspending business operations, and shrinking revenues.

Years after, there’s been a somewhat uneven path to recovery from the effects of COVID-19. The United States and the United Kingdom have lifted most mandates and restrictions in parallel to falling infection and mortality rates.

Yet, in 2022, China still faces disease outbreaks equivalent to the peak of the pandemic in 2020. Some of China’s largest cities experienced partial or full lockdowns and restrictions in April and May 2022, causing a whiplash effect once again on supply chains. According to data from the World Bank, China accounts for roughly 12% of global trade.

The impact on supply chains is twofold. For one, companies must again closely monitor short-term and long-term demand and inventory to accommodate production loss in the wake of factory closures and economic slowdown.

For another, retailers are faced with inventory depletion as consumers could again stock up in preparation for potential shortages or delivery delays. In spite of that possibility, some retailers have already faced an overstock due to record inflation rates in 2022.

“Retailers around the world are still grappling with the appropriate response to the coronavirus for their employees, customers and their business,” said Hilding Anderson, head of retail strategy for North America at Publicis Sapient. “For many, it's shaped into a once-in-a-generation test of business continuity, planning and supply chain flexibility.”

Preparing for supply chain disruptions

Events that have a very high impact on the market but have a very low probability of materialization—otherwise known as “black swan events”—make short-term and long-term consequences like panic buying, work shortages or limited supply hard to measure definitively. However, there are measures organizations can take that can help navigate risk when black swan events occur—and as they unfold.

Supply chain contingency plans as a top priority

According to Nitin Dsouza, director of strategy and transformation at Publicis Sapient, organizations should start with scenario planning strategies, where different demand environments are considered across the entire supply chain. While different organizations face unique risks, companies should develop plans for both optimistic and worst-case situations. In the case of COVID-19, these are defined as:

• Optimistic scenario: By 2027, COVID-19’s importance has been reduced due to high levels of international collaboration.
• Worst-case scenario: By 2027, COVID-19 remains largely uncontrolled, with severe recurrences in parts of the world.
  
  

Mitigating supply chain shock

In the short term, companies can work with existing suppliers to make a business continuity plan. Businesses should identify suppliers in different regions to diversify the supply chain and safeguard against shortages, especially for products with longer supply cycles.

Buffer your business model with additional inventory

According to Anshul Acharya, vice president of management consulting at Publicis Sapient, organizations that have exposure in China typically see longer spans between demand signals and delivery, often with 30, 60 or 90-day delays.

“In these situations, it's always important that your business model allows a buffer with additional inventory,” Acharya said.

Source materials nearshore

Balancing sourcing resilience and flexibility with cost was already on the list for many retailers, according to Anderson. With the desire for more personalized, customizable products and more speed, opportunities exist in sourcing nearshore as well as offshore.

"The continued spread of coronavirus is another reason for retailers to consider introducing more supplier flexibility," Anderson said.

Link data sets across your supplier network

Aggregating data from third-party partners allows visibility into stock movement across the supply chain network and can pinpoint potential roadblocks. For example, if inventory is delayed when crossing the border, organizations can put contingency plans in place to address the issues and accelerate outcomes.

“Can you link your data sets from your supply and your demand across your internal network and across the supplier network?” Dsouza asked. “From there, you can then start measuring various scenarios and identifying where rapid intervention could be done."

Use digital twins to simulate demand and supply

In the longer term, companies would benefit from using enterprise digital twin solutions that can simulate demand and supply from end to end within and across the enterprise.

“Technologies that provide inventory visibility across the distribution network (e.g., distribution centers, stores, vendors, third-party providers and wholesale inventory) offer major benefits for flexibility and transparency to serve customers in the best way possible given supply limitation,” Anderson said.

Supply chain risk management strategies to manage demand volatility

In the short term, halting promotions, prioritizing products, and creating inventory reserves are other strategies to help manage demand when supply is limited.

Nielsen data showed that sales of oat milk, surgical masks, first-aid kits and other non-perishables spiked throughout late February 2020 in response to coronavirus fears.

These “panic buying” scenarios—where certain items spiked in demand—led to some price gouging both in-store and online as supplies became more limited. Amazon was ineffective in restricting marketplace sellers from increasing prices as much as 2,000 percent.

Some companies took on the role of “responsible retailer.” Tesco, for example, was one of a handful of supermarkets participating in a “Feed the Nation” contingency plan, working with suppliers to control demand while creating a positive image in the minds of their consumers.

But what can retailers do when the economic tables turn?

U.S. inflation rates hit a 40-year high in January 2022, and data from the U.S. Department of Commerce showed that while consumer demand remained high in May 2022, it has since slowed, leaving retailers with several key issues.

Predict decreased consumer demand due to inflation

When retailers face the brunt of inflation—experiencing higher materials and fuel costs as well as disruptions to supply chains—profit margins decrease.

However, if retailers increase prices too heavily, they risk damaging relationships with consumers in the long run, according to Dsouza.

Logistical changes to improve operations or product offering updates can help businesses mitigate profit loss. In the medium term, companies should plan for a bullwhip effect to impact their business and their suppliers due to high volatility. They should link supply to consumer demand within the business and allow trusted suppliers to have full demand visibility.

Use AI demand planning tools

On a broader scale, AI/ML-based demand planning tools using big data and hot data sets should be leveraged to aggregate metrics like weather and seasonal shopping habits, allowing for stronger predictive models in preparation for decreases or increases in consumer demand and overall supply chain management.

Improving safety and health in global supply chains

Equipping employees who handle food, logistics or delivery with personal protective equipment (PPE) can help keep workers and consumers safe in outbreak situations like COVID-19. Stocking up on PPE supplies early on can help mitigate the risk of shortages over extended periods of time, especially if global supplies are strained due to lockdowns or restrictions.

Technologies like internal third-party logistics and employee applications can also be used to monitor staff availability and shipment options while streamlining onboarding procedures for new workers.

“Enable new staff to be onboarded, trained and be work-ready, with assistive intelligence technology along with the promise of a protective environment,” Dsouza said.

Harnessing technology to prepare for an unprecedented future

Following the initial COVID-19 outbreak in early 2020, supply chains are still experiencing strains in this global state of the “new normal.” While black swan events like coronavirus can’t always be predicted, understanding supply chain risks and opportunities gives organizations more transparency to plan ahead while maintaining customer experiences in the face of crisis.

“New versions of established tools will play a critical role in helping supply chain managers have an ongoing view of potential risks and provide a framework to help take corrective actions to better serve their customers,” Anderson said.