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