With COVID-19 impacting global supply chains across many industries right now, Gartner is advising organizations to focus their efforts on three impact areas for their initial crisis management.
“As COVID-19 spreads globally, we are seeing increased supply chain disruption, but also changes in consumer spending habits,” said Sarah Watt, senior director analyst with the Gartner Supply Chain practice, in a press release.
“Supply has been impacted in three primary ways: limited access to employees due to quarantines, factory closures or manufacturing slowdowns, and limited access to logistics to move goods,” Watt continued. “Most supply chain organizations are in crisis management, assessing impacts and response on a daily, if not hourly basis.”
Workforce, Products, Costs
To help companies manage in this time of global crisis, Gartner is telling supply chain leaders to focus their efforts on these three main areas: workforce, product, and costs. Here’s why the firm sees these as the most critical areas and its advice to companies that need help developing a plan of attack:
Workforce. In order to limit the impact of COVID-19, many employees have been instructed by local governments or advised by their employers to stay at home. Employers have put in place controls around travel and site visitors. “For factories, this resulted in goods not being produced and exported to dependent markets or other factories,” Gartner pointed out, noting that as long as this situation continues, supply chains won’t work as intended.
“As the virus extends globally, supply chain leaders need to think about how to protect the health of workers, and support individuals who are ill,” said Watt. “Providing clear and consistent communication through human resources and travel security is essential. As this crisis is ongoing, the risk is that crisis management teams become fatigued and make poor decisions.”
Products. According to Gartner, COVID-19 has the potential to change the competitive landscape. Suppliers for commoditized products are at risk to lose market share, as clients will look into substitute suppliers when they don’t receive their products on time. “Products associated with a higher degree of brand loyalty are likely to be less impacted in the short term because customers are more willing to wait,” the research firm added. “As the virus progresses, consumers might adopt more conservative spending patterns, focusing on essential goods.”
When forced to make trade-off decisions, for example, supply chain leaders must analyze and forecast the impact of the new coronavirus on customer demand and product availability. Prioritization and trade-offs can be made based on high-revenue or high-profit margin products that are in demand.
“Supply chain organizations need to frequently reassess their supply and demand plans based on the evolution of the virus and consumer sentiment,” Watt said. “Supply chains may also experience sharp increases in demand for products or unexpected consequences from the event, such as panic buying for essential items.”
Costs. Gartner expects a variety of financial impacts for organizations, including increased shipping costs, higher product costs and the ongoing need to meet their own financial objectives. “Even contractually-agreed prices and quantities of materials might no longer be valid,” Watt pointed out. “Suppliers could invoke force majeure clauses or otherwise look to pass on additional costs up through the supply chain.”
Any additional COVID-19-related costs should be treated as an issue that concerns the whole organization, versus just a single department, Gartner pointed out. “This makes it easier to assess the costs against the organization’s ability to achieve its strategic objectives and manage stakeholder expectations.”
A Focus on Resilience and Continuity
Watt said that right now is a good time to sit down with your firm’s legal department and analyze all supplier contracts. That way, when the time for renewal comes, you’ll be helping to ensure that the organization is financially protected against similar situations that might occur in the future.
“Supply chains will not be the same after this event,” Watt concluded. “There will be an increased focus on resilience, risk exposure and business continuity plans going forward.”