Coronavirus crisis shows that visibility into supply chains is critical

The coronavirus outbreak has disrupted supply chains big and small — and not just ones connected to China’s global manufacturing sector that the coronavirus hit first. As COVID-19 affects supply chains around the world and people must work from home or not at all, businesses everywhere are feeling the pain of halting operations, dealing with supply shortages and suffering from a lack of demand.

“We’re seeing companies ask what to do in the crisis, and from our perspective there are really two things,” BearingPoint Partner Chetan Rangaswamy said. “First, invest in visibility tools that will help manage your supply chain and supply chain disruptions; really understand your planning and procurement technology options. Second, use that visibility to understand your suppliers’ strengths and weaknesses. Supply chains are based on complex relationships, including your supplier’s supplier. You need to know the benefits and risks beyond the first tier of your suppliers.”

Spend Matters is hearing from providers of cloud procurement solutions that their clients are switching from the typical tech uses, which focus on cutting costs, to deploying the solutions for what was once considered tasks to be put off for the future — tasks like real-time supplier collaboration and involving more stakeholders in analytics. Procurement has long championed the idea that it could add value to the business, making it a higher profile ally across the company. In this crisis, procurement teams that have digitally transformed can live up to that promise.

But let’s consider how procurement and supply chain departments can adapt to help in any crisis.

In the short term, businesses will to need better collaboration with suppliers to handle change orders, cancellations and delivery challenges. Then they’ll have to realign their supply chain by adding new suppliers without adding risk (when you re-source your supply chain, you don’t want to onboard a supplier that uses child labor or is on a watch list). And businesses also will have to ensure that their warehouses and transportation operations get back on track, as well as improve.

Businesses that have digitally updated their operations have insight into their supply chain problems and can begin to mitigate them. Companies that still rely on manual processes like email, spreadsheets and phone calls to stay in touch with suppliers have much less visibility into their risks and how to solve them.

Answering basic questions

Spend Matters Chief Research Officer Pierre Mitchell and our other analysts have been writing about crisis management in our Coronavirus Response series. The first two items on our response list are supply risk management and sourcing in a crisis.

For supply risk management, we recommend starting by getting as many details about your supply chain as possible. Ask these questions:

• What countries does my company do business in with suppliers at the tier one level? Tier two? Tier three?
• Which suppliers are affected by COVID-19, and what should I do about it?
• Will they be financially threatened because of COVID-19?
• Do I have supply risks in critical categories because of COVID-19?
• Is there anything I can do if suppliers are individually high risk?
• What transportation lanes are impacted? Where is my cargo/containers today? Can delays or other risk factors be expected further down the inbound supply chain before it reaches my facilities? For example, West Coast ports are dying for container ship capacity because so many ships are idled in China in quarantine conditions.

You may need to work with a third-party provider that assesses risks and can map your supply chain to show problem hot spots.

“These heatmaps … will set off the alerts that trigger buyers to contact their affected suppliers to get a real-time assessment and determine the appropriate recovery/mitigation steps,” Mitchell said in the series. “Those mitigations then become tasks that must be tracked, elevated and ultimately resolved. The alerts can also be prioritized by the revenue/profit at risk associated with the products made from the affected components/materials coming from those sites.”

So it’s clear that technology is vital to seeing the problems and tracking them to resolution.

In addition, knowing your suppliers and their suppliers obviously helps you avoid risk, but it also lets you know which levers to pull if you need to scale up operations or shift priorities during a crisis.

Keys to success: Collaboration, planning and procurement

Business continuity is key during a crisis, and the technology needed for that should have collaboration tools to facilitate real-time information about the ordering of goods and services, delivering the products and warehousing them.

Just-in-time delivery has taken a lot of heat in the coronavirus crisis for not being able to hold large inventories of vital products and being too dependent on single sources in supply chains. That lean model may be modified after this is all over, but it’s not likely going back to the time where large inventories are stockpiled.

But improving in three areas of technologies can help:

• Order visibility: If purchase orders can be seen in real time, collaboration can occur and answers to problems like backlogs can be addressed quickly. The information can drive dynamic planning for receiving departments, production and inventory.
• Carrier visibility: As mentioned above, logistics are vital. It’s important to know where your products are and what risks they face. Many carriers have the ability to provide electronic notifications via EDI or web services driven from GPS or ELD-based applications on the smartphones of their drivers or in their trucks. Real-time collaboration here can save travel time as well as aid online dock scheduling systems to reserve a time and door for the delivery.
• Warehouse visibility: When information from suppliers and carriers is shared, collaboration helps customers improve their receiving operations and putaway strategies.
• Forecast visibility: This is vital to help anticipate the risks and opportunities to come. With the ability for more information in real time, planning teams will be able to share supplier capacity issues with the buying community to quickly launch sourcing events for alternate supply.

Firms that have this array of visibility are able to rapidly respond to client needs, particularly in times of crisis, and engage the supply base to meet customer demand. This results in benefits like increased inventory turns, reduced cost and most importantly having the right products at the right time for customers.

Keys to success: Planning for a multi-tier supply base

In his calls about the coronavirus crisis and its disruption of business, Rangaswamy said several BearingPoint clients mentioned that their leadership is laser-focused on the supply chain’s role in business continuity.

It’s true that most companies can’t see into their tier 2, tier 3 suppliers and beyond. That’s why having visibility tools are vital. Those blind spots can hurt a business if a supplier is using bad materials or unethical practices. On the positive side, supply chain collaboration can lead to quicker notification of problems, quicker proposals for solutions and a more unified approach overall.

A multi-tier supply chain, sometimes called n-tier, relies on multiple supplier-to-buyer relationships within one supply chain. They’re key to lowering costs, reducing capital assets and getting products to markets faster. However, if you don’t have a technology solution that offers a single view of your supply chain and lets you collaborate with suppliers, this multi-tier approach increases complexity, reduces visibility and limits control. Most companies struggle with tier 1 supply chain visibility (see above topics) let alone multi-tiered suppliers.

That’s not good for operating a war room, and it’s not good for day-to-day business.

Without a centralized way to communicate with suppliers, problems get handled individually as they pop up and not in a coordinated way where many stakeholders up and down the supply chain could more easily address the issue. Playing whack-a-mole to solve problems during a crisis wastes time and resources.

So how can supply chain visibility be improved? Consider these five areas:

• Define/refine visibility: Have a common view of purchase orders, facilitate collaboration with suppliers and use technology that gives stakeholders in other departments a window into what procurement is seeing.
• Manage data: Supplier information management (SIM) is key here. Ensure that the information going into the system is accurate, and the trend is for this to be self-serviced — meaning the technology is so easy to use that suppliers can walk up, use it and feel confident in updating information again. It’s also important to cleanse your master data so that you build trust up and down the supply chain.
• Map data with supply chain tools: Dashboards can drive information to other departments to let them know where orders stand and what actions need to be taken. On a wider scale, some providers of risk solutions can map hot spots around the world.
• Work with cross-functional teams to understand monitoring strategies: Coordinate and execute on your plan instead of using the whack-a-mole tactic. Your war room needs a single source of communication and coordination to deliver a consistent message.
• Improve data exchange and accuracy: Recall that in this coronavirus crisis, a lot of change orders and cancellations are coming in. If buyers and suppliers don’t have a real-time way to input these in a common system, the delay in notification means planning and production teams operate on old data — increasing the chance of mistakes and further delays. Data errors can also result in finance departments not knowing when they would recognize revenue. And if procurement doesn’t have visibility into lead times or delivery dates, manufacturers could overbuy “safety stock” — tying up cash.

Next steps in the crisis

Businesses typically prepare for a single “black swan” event — but the coronavirus outbreak has hit all business at once. That means a company that can handle its problems better than its competitors will survive and maybe even come out stronger. The ones that have the best visibility into their supply chain will likely have the best vision for the future and bounce back quicker once the recovery phase begins.

Regardless of a procurement department’s digital maturity, companies must consider what technology will help them weather this crisis and deploy it to improve collaboration and visibility.

This Brand Studio post was written with BearingPoint.