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Managing Supply Chain Disruptions Remotely
April 2, 2020
Why Supply Chain
Continuity Is Critical
• Roughly 40 to 60 percent of small businesses never reopen their doors following a disaster.
• Following a disaster, 90% of smaller companies fail within a year unless they can resume operations within 5 days.
• Every supplier that shuts down causes major disruption to each one of its customers’ supply chains.
Strategies for Managing Risk
Mitgationaction of reducing the severity,
seriousness, or painfulness of something
Adaptationaction to prepare for and adjust to new conditions, thereby reducing harm or
taking advantage of new opportunities
What causes supply chain disruption?
• Inaccurate planning and forecasting • Price hikes, inventory shortages, facility capacity, yard
management, container management, transportation management
• Natural and environmental disasters• Tornados, hurricanes, floods, droughts, earthquakes,
wildfires
• Changes in governmental regulations• Taxations, trade restrictions, border controls, labor
laws
• Transportation fluctuations• Cargo theft, regulation changes, shipping damage,
weather, traffic delays
• Geopolitical instability• Civil wars, protests, riots
• Cyber attacks• Computer hacking, ransomware, file corruption, data
breaches
Black Swan Events
9/11 (2001)SARS outbreak (2003)Hurricane Katrina (2005)Fukushima Earthquake (2011)BREXIT (2018)COVID-19 (2020)
It is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility.
It has an “extreme impact”
The relevant data were available but unaccounted for in risk mitigation programs
Why COVID-19 Is Different
https://www.scmr.com/article/supply_chain_disruptions_and_covid_19
Examples
CONSULTING COMPANY
RESTAURANT MANUFACTURING
Illuminate Your Supply Base
Who
Where
When
Identify Suppliers
• Over last 24 months
Look to your accounting records
• High spend• Frequent purchases• Integral to product/service
If you have more than 30-ish vendors, prioritize
Supplier Examples
• IT (internet, file access, Microsoft programs)• Travel (airlines, hotel, car rental)
Consulting
• Fresh food (produce, meat, dairy)• Other food (frozen, shelf-stable)• Linens (tablecloths, napkins, server uniforms)• Packaging (to-go boxes, plastic bags)• Utilities (electricity, natural gas, internet)
Restaurant
• Raw materials (resin, paper/pulp, widgets)• Equipment (service/repair, machinery)• Packaging (cardboard, thin film, pallets)
Manufacturing
Assess Disruption Risks
Consequences may include:
Cost Schedule Technical Performance Reputation
Probabilities and consequences of risk
Disruption Examples: ConsultingLikelihood of
DisruptionCost Schedule Performance Reputation Total Score
Airlines 2 4 5 5 4 36
Hotel 2 2 3 4 4 28
Car Rental 2 1 3 4 4 24
Internet 4 4 3 5 4 64
File Access
2 1 2 2 1 12
Computer Programs
1 2 2 2 1 7
Disruption that makes it impossible (or extremely inconvenient) to secure the product/service
Scoring each cell from 1-5, with 5 being the highest risk/impact to businessLikelihood x (Cost + Schedule + Performance + Reputation) = Total Score
Disruption Examples: RestaurantLikelihood of
DisruptionCost Schedule Performance Reputation Total Score
Produce 2 4 3 5 5 34
Meat 2 5 3 5 5 36
Dairy 2 3 3 4 4 28
Frozen 1 3 3 3 3 24
Shelf-stable
1 2 3 3 3 22
Linens 1 3 3 3 2 22
Packaging 1 2 2 2 4 10
Electricity 3 1 3 4 3 33
Internet 2 2 2 2 2 16
Disruption Examples: Manufacturing
Likelihood of Disruption
Cost Schedule Performance Reputation Total Score
Resin 3 5 5 5 5 60
Paper Pulp 2 2 4 5 5 32
Widgets 3 5 3 5 4 51
Machinery 1 4 2 3 3 12
Equipment Service
3 3 5 4 5 51
Electricity 1 1 5 4 3 13
Cardboard 1 3 4 3 3 13
Mitigation Approaches
ACCEPT AVOID TRANSFER REDUCE
Mitigation Examples: Consulting
Avoid Transfer Reduce
Internet • Cellular hot-spot capability
• Hard-drive back-up
Airlines • Train • Contract specifies client covers part/all disruption costs
• Multiple approved airlines
Hotel • AirBnB• VRBO
• Contract specifies client covers part/all disruption costs
• Multiple approved hotel chains
Mitigation Examples: Restaurant
Avoid Transfer Reduce
Produce • Shared cost/consequence with vendors
• Secondary suppliers
• Frozen alternatives
Meat • Shared cost/consequence with vendors
• Increase in-house inventory
• Identifysecondary suppliers
Electricity • Back-up generator
• Disruption insurance
Mitigation Examples: Manufacturing
Avoid Transfer Reduce
Resin • Shared cost/consequence with vendors
Widgets • Shared cost/consequence with vendors
• Increase in-house inventory
Equipment Service • Train personnel in-house
• Contract specifies vendor covers part/all disruption costs
• Train personnel in-house
Adaptation Approaches
• Stockpile Inventory• Diversify Your Supply Base
• Eliminate high-risk vendors/inputs• Develop Backup Suppliers
• Manage Product Demand• Evolve your products and services
• Strengthen the Core Supply Chain• Modify your vendor and client contracts• Change your payment terms
Adaptation Examples: Consulting
Adaptation strategies:
Modify standard contracts, terms and conditions
Create more virtual events,
including training
Develop passive streams of income
(workbooks, e-courses, etc.)
Biggest risks are travel and IT disruptions
Adaptation Examples: Restaurant
Adaptation strategies:
Modify standard contracts, terms and conditions
Create modified menu
Increase inventory of key
supplies
Biggest risks are food and power
Adaptation Examples: Manufacturing
Adaptation strategies:
Modify standard contracts, terms and conditions
Train in-house personnel on maintenance
Increase inventory of key
supplies
Biggest risks are raw materials and
equipment service
Short Term Actions
• Crisis Response Team – Identify key stakeholders who should be responsible for communicating updates internally, consolidating requirements and setting priorities for the suppliers.
• Material Criticality – Understand material criticality across multiple tiers and associated risk on revenue.
• Contingency Plan – Establish a contingency plan to source freight from other suppliers in non-affected regions.
• Scenarios – Understand financial and operational impact across multiple scenarios.
• Supply-Demand Balance – Focus on balancing supply and demand, and building buffer stock as necessary.
• Transportation Mode – Evaluate using other modes of transportation (cost-benefit) to reduce replenishment times.
• Supplier Stabilization – Support suppliers (working capital infusion, loans, etc.) to help them get started.
• Alternate Supply – Determine potential suppliers for short-term sourcing in case alternate supply is required.
• Production Optimization – Understand high margin and high opportunity cost products for prioritization.
• Supplier Financial Health – Evaluate the financial health of your key suppliers to assess the potential impact to your supply chain.
• Remote Operations – Define a business continuity plan to ensure the workforce is staying connected, engaged and productive while working remotely.
https://advisory.kpmg.us/blog/2020/covid-19-manage-supply-chain-disruptions.html
Mid-to Long-Term Actions
• Supply Chain Visibility – Deploy visibility tools giving organizations real-time access to capacity constraints across the multiple tiers of their supply chain.
• Supply Chain Resilience – Look to develop more collaborative relationships with critical suppliers in order to build organizational resilience as it is highly unrealistic to completely exit the Chinese market because of the supplier ecosystems in place, however organizations should understand their supply chains more deeply
• Micro Supply Chains - Build agility and speed into your supply chain by creating Micro-Supply Chains; finite, decentralized, agile ‘mini-operating models’, with flexible supplier contracts and relationships with manufacturing closer to the point of purchase. Explore strategies to ‘buy where you make, and make where you sell.’
• Supply Chain Risk Monitoring – Utilize risk evaluation and monitoring tools that use machine learning techniques to predict patterns that indicate the exposure to various risks.
• Supplier Diversification - Assess opportunities to diversify the supplier base. Identify geographically diverse suppliers to onboard in the event of emergency. Considerations should be given to dual-sourcing for critical components.
• Supplier-Centric Procurement - Move towards a Supplier-Centric approach to procurement, further integrating your supply chains with those of your Tier 1 and Tier 2 suppliers.
• Supply Chain Strategies – Need to move away from an adversarial, short-term approach and to a long-term strategy of driving value. Periodically test and revise your strategy to account for organizational growth and environmental change.
https://advisory.kpmg.us/blog/2020/covid-19-manage-supply-chain-disruptions.html
Additional Resources• FEMA: Make your small business resilient to disaster: https://www.fema.gov/media-library-
data/1441212988001-1aa7fa978c5f999ed088dcaa815cb8cd/3a_BusinessInfographic-1.pdf
• Coronavirus (COVID-19): Maintaining Supply Through Black Swan Events: https://www.industrystarsolutions.com/blog/2020/03/coronavirus-covid-19-maintaining-supply-black-swan-events/
• From Superstorms to Factory Fires: Managing Unpredictable Supply-Chain Disruptions: https://hbr.org/2014/01/from-superstorms-to-factory-fires-managing-unpredictable-supply-chain-disruptions
• Reducing the Risk of Supply Chain Disruptions: https://sloanreview.mit.edu/article/reducing-the-risk-of-supply-chain-disruptions/
• COVID-19 Managing supply chain risk and disruption: https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/finance/Supply-Chain_POV_EN_FINAL-AODA.pdf
• What past disruptions can teach us about reviving supply chains after COVID-19: https://www.weforum.org/agenda/2020/03/covid-19-coronavirus-lessons-past-supply-chain-disruptions/
• How can supply chains manage COVID-19 risk? 4 experts weigh in: https://www.supplychaindive.com/news/coronavirus-short-long-term-risk-supply-chain/575312/
• COVID-19 (Coronavirus) Industry Exposure Tool: https://www.ibisworld.com/coronavirus-industry-exposure
• Webinar: COVID-19 Economic and Industry Impact - United States: https://www.ibisworld.com/industry-insider/webinars/webinar-covid-19-economic-and-industry-impact
Q&A
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