Supply chain leaders urged to focus on three key impact areas to address disruption

With the current widespread impact on global supply chains, supply chain leaders should focus on three impact areas for their initial crisis management, according to Gartner.

"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. “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. Most supply chain organisations are in crisis management, assessing impacts and response on a daily, if not hourly basis.”

Gartner recommends that supply chain leaders focus their efforts on these three main areas. 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. As long as this situation continues, supply chains will not 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. Providing clear and consistent communication through human resources and travel security is essential,” said Watt. “As this crisis is ongoing, the risk is that crisis management teams become fatigued and make poor decisions.”

COVID-19 has the potential to change the competitive landscape. Gartner warns that suppliers for commoditised products are at risk of losing market share, as clients will look into substitute suppliers when they do not 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. As the virus progresses, consumers might adopt more conservative spending patterns, focusing on essential goods.

Costs are the third key area, and there is a variety of financial impacts to organisations with increased costs for shipping, and more broadly concern about companies meeting their financial objectives.

“Even contractually agreed prices and quantities of materials might no longer be valid. Suppliers could invoke force majeure clauses or otherwise look to pass on additional costs up through the supply chain,” said Watt said. She also warns that the current situation demands long-term thinking too, since it is likely to change the overall supply chain landscape for the future. “It’s a good idea to sit together with the legal department and analyse all supplier contracts. When the time renewal comes, make sure that the organisation is financially protected against similar situations that might occur in the future. Supply chains will not be the same after this event. There will be an increased focus on resilience, risk exposure and business continuity plans going forward.”

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