94% of the Fortune 1000 companies experienced supply chain disruptions due to COVID-19 (Fortune, 2020) — this didn’t affect only raw materials, but production materials also. Global supply chain disruptions like this have never been seen before.

The pandemic has also created temporary “manufacturing deserts”, whereby the output from regions drop materially — meaning it becomes impossible to source anything but essential items such as foodstuffs and pharmaceuticals.

With many academics agreeing that significant outbreaks of similar diseases are ‘highly likely’ in the future (WHO) businesses should expect further disruption and instability in their supply chains — more often and more severe, due to increasing economic, environment and political instability.

Risk Management

Before COVID-19, traditional risk management principles were only followed by top-tier suppliers — leaving lower-their suppliers vulnerable to impacts from further up the chain.

While the cost of such risk management processes can be high, it is now apparent that the savings it can generate along with new models produced against the ongoing crisis mean that ongoing, detailed risk management is vitally important.

A diversified supply chain with multiple sourcing options, distributed inventory and contingency can stop large hospitality businesses from grinding to a halt.

Risk management and analysis are much easier to manage with an entirely digitised supply chain. Big data analytics can assist retail and hospitality supply chain organisations in streamlining their supplier management methodologies. Cloud-computing can be utilised to manage supplier relationships and run complex models to better understand risk. Logistics and shipping processes can be greatly enhanced through automation and the internet of things.

Creating a New Normal

The dynamic of the ongoing conversation between the C-Suite and the operations department will change. Traditionally working capital optimisation is generally directed by the C-Suite across all procured goods, whilst the operations department usually hesitates to reduce stock levels to the minimum, fearing disruptions in the supply chain.

Let’s take PPE equipment, for example — companies now need to start sourcing these items as strategic goods, as production cannot happen without them. PPE is not an area for working capital optimisation as a shortage will grind your supply chain to a halt.

Just-In-Time delivery is another area where the new standard will change — moving some of these new strategic items out of the JIT model will further improve your supply chain reliability.

Force majeure clauses in contracts should also be reconsidered. In times of crisis, we want to start working closer with providers (both during and after the event) and we, therefore, need to update the contractual framework to deal with such things. Can the risk be shared? How is volatile pricing managed? What happens when production doe have to stock? Only by treating these providers as partners can we establish a more reliable supply chain.

Digitisation

KPIs, dashboards and other reporting and governance should be put in place as far down the supply chain as possible (not just with tier 1 suppliers), as it will help operations teams to understand supply chain flexibility and resource at any time.

Additionally, mapping these complex supply maps can form part of better service management at contractual reviews.

Orderly provides supply chain software specialised for food and beverage retail and hospitality businesses with agile needs. Their suite of order, inventory and forecasting solutions can assist with digital management of the supply chain through both turbulent and stable times.