Supply Chain Risk

Supplier Risk Management Considerations for the Coronavirus Outbreak

by Jarrod McAdoo
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The impact of the Coronavirus continues to be felt globally and the World Health Organization and government continues to urge caution as they implement controls to stem the flow of the infection.  The death toll has reached over 900 and the number of confirmed cases has exceeded more than 40,000. Even more concerning is that the death toll has spread outside of mainland China and ships outside of ports in Hong Kong and Japan are being quarantined.  

Beyond this enormous human toll, the Coronavirus and the efforts to control the spread of the virus is being felt throughout the world’s supply chain.  Factories in China are facing staffing shortages or are electing to remain closed to protect its workforce, airlines have suspended flights to China, and restrictions and regulations designed to control the spread of the virus could have an adverse impact on cargo leaving and entering ports all over the world.  Some of the impacts have been immediate, but some of the latent impacts will not be felt for months. This will impact manufacturers and retailers who rely on these products and labor, the logistics haulers expecting to transport the material, and ultimately the end consumers. 

This crisis demonstrates the increasingly global nature and complexity of supply chains and the imperative to manage the risk within this complex supply chain.  When comparing this outbreak with the outbreak of SARS in 2003 it is striking to see how quickly Coronavirus has eclipsed SARS in the number of infections. It has taken the Coronavirus only two months to infect 75% of the total number infected by SARS over a nine-month period.  This also shows how much China has developed in terms of population and establishing itself as a key cog in the world’s economy. This highlights the danger of Coronavirus becoming a global issue if not controlled closely.  

What can organizations do to prepare themselves for these impacts?   While many leading organizations have developed programs to manage and deal with supply chain disruption, this situation is a unique challenge for even those organizations with advanced risk management programs.  Regardless of the level of sophistication in an organization’s risk program, all organizations can take steps to monitor their supply chain and prepare themselves for the impacts of the epidemic.  

These steps include

  1. Know where your supply chain is located – Identify those countries that are currently at high risk and map your supply chain against these affected areas.  This mapping should include evaluating those key tier 2 and tier 3 suppliers as well as key logistics hubs that could be impacted. 
  2. Continuously monitor changes – Understand that the crisis is still unfolding and the true impacts from a supply chain disruption perspective may not reveal themselves for months.  Establish a process to monitor other regions outside the infected areas that could be impacted. Are ports outside the infected areas being impacted through disruption or through new regulations to protect against transmission of the virus?  Are suppliers struggling financially without access to the Chinese markets, jeopardizing their viability? 
  3. Diversify the supply base – Like a financial portfolio, look for opportunities to rebalance and diversify the supply base to minimize the risk and take actions to qualify these suppliers in the event they are needed. 

This recent crisis underscores the need for organizations to establish and maintain effective proactive risk management programs for their supply chain.  While it is impossible for organizations to anticipate these types of outbreaks, an effective risk management program, complete with processes, tools, and data can lessen the impact and the time it takes an organization to recover.   

Learn more about the challenges and steps necessary to build an effective and proactive Supplier Risk Management program in this research “Integrated Risk Management: A Playbook for Procurement” from The Hackett Group.   

 

 

 

Jarrod McAdoo Profile
Author

Jarrod McAdoo

Jarrod McAdoo brings over 22 years of procurement experience across multiple industries, including higher education, retail, manufacturing, and engineered products.  During this time, Jarrod held various roles in category and supplier management including the management of strategic sourcing and procurement teams as well as leading teams in implementing shared service procurement models and source to pay systems.  Jarrod holds a Masters in Business Administration from Duquesne University and a Bachelor’s degree from Carnegie Mellon University.

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