The ongoing COVID-19 pandemic has taken a serious toll on businesses across all industries, and supply chain companies are no exception. According to a recent survey from the Institute of Supply Management (ISM), nearly 75% of companies report supply chain disruptions in some capacity due to coronavirus-related transportation restrictions; 16% also report adjusting their revenue targets downward an average of 5.6% as a direct result of coronavirus.
“The story the data tells is that companies are faced with a lengthy recovery to normal operations in the wake of the virus outbreak,” said Thomas W. Derry, Chief Executive Officer of ISM.
Another survey from the MIT Center for Transportation and Logistics (MIT CTL) revealed an alarming statistic: Only 16% of respondents mentioned that their company has set up an emergency management center. When asked whether they believed that coronavirus-related disruption would change how their company operates its supply chain in the future, nearly a third of respondents expressed that they felt that their company should have better risk management protocols in place.
These responses are indicative of a larger issue within the supply chain logistics industry — an issue that does not stem from the current COVID-19 crisis but is further compounded by it: the lack of a logistics contingency plan.
In our closely connected world, events that take place in one location can have a ripple effect that is felt thousands of miles away. Nowhere is this truer than in the supply chain logistics industry, which consists of a global, interdependent network of raw materials suppliers, manufacturers, carriers, distributors, wholesalers and retailers. This network is set up in such a way that events that transpire at one point along the supply chain can have serious downstream repercussions throughout the rest of the supply chain.
Perhaps the best-known example of this is the bullwhip effect. The Wall Street Journal describes the bullwhip effect as a phenomenon that “occurs when companies significantly cut or add inventories. Economists call it a bullwhip because even small increases in demand can cause a big snap in the need for parts and materials further down the supply chain.” Also known as the whiplash effect or the Forrester effect, this concept is attributed to renowned computer engineer, systems scientist and former MIT professor Jay Wright Forrester, who first wrote of it in his 1961 book Industrial Dynamics.
The bullwhip effect can occur for any number of reasons, from price fluctuations caused by special discounts to a lack of communication between different links in the supply chain. We’ve recently seen how the implementation, whether real or anticipated, can create significant ramping up of inventories received from overseas. Natural disasters and global pandemics can also cause the bullwhip to “snap.” In the case of the current COVID-19 outbreak, the panic buying and hoarding of essentials such as food, paper goods and sanitary products have radically skewed demand patterns, making it difficult for vendors throughout the supply chain to generate accurate forecasts.
In this sense, a supply chain is something like a series of dominoes — and without a logistics contingency plan in place, the whole supply chain can topple.
If your business is feeling the effects of COVID-19, use this as a learning opportunity and pivot your supply chain strategy accordingly. Some immediate takeaways:
Although it might be a bit late to create a supply chain contingency plan for COVID-19 crisis, there’s never a bad time to start planning for the future. Here are a few best practices to help you develop a logistics contingency plan that will steer your business through any events that might disrupt your supply chain:
We realize that the ongoing crisis has introduced a great deal of uncertainty to the global supply chain. That’s why we feel it’s important to let you know Legacy Supply Chain Services is ready and able to handle your most pressing logistics-related needs. If you have any questions or comments or would simply like more information about how to adapt your business to these unprecedented times, don’t hesitate to contact us. We’re here for you.
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