- Automotive, consumer goods and retail supply chains are in danger of stock-outs by the end of March, late April and May, respectively, due to COVID-19 related supplier delays in China, according to a report McKinsey released this month.
- Previous just-in-time manufacturing methods and/or traditionally low stock levels that could keep supply chains nimble may now present a significant risk as production and cargo movement out of China remains constricted, U.S. and EU factories begin to shut down to prevent the spread of COVID-19 and consumers stockpile goods amid shelter-in-place or social-distancing measures.
- "What used to be two to four weeks of inventory in the pipeline could easily become six days, or longer [alternatively], if no one is able to go and buy the product you're making," Ed Barriball, a partner at McKinsey and co-author of the report told Supply Chain Dive in an interview.
As companies weather the current downturn they need to begin planning, even now, Barriball said, to make plans for eventually ramping up again, especially if they or their suppliers are not operating at full capacity in various parts of the world.
As a firm, "which products I ramp up first, I think, is a super important thing to be thinking through right now," he said. "There is a real risk that you end up producing things that you don't need to or aren't going to be bought at the expense of things that people really might be interested in buying as things get started back up."
To do this, ensuring end-to-end supply chain visibility and coordinating with customers and tier one, tier two and alternate regional suppliers to get a picture of how much inventory is already in the supply chain, where it is going to come from and where it needs to be allocated is critical, the report said.
Even "after-sales stock should be used as a bridge to keep production running," the report recommends. Inventory already with customers can be "considered to see if stock could be bought back or transparency could be created for cross-delivery."
Differences between individual U.S. state and international COVID-19 infection rates and containment efforts will affect how quickly operations and customer bases will see an uptick in production capacity and demand once the pandemic begins to recede.
"This is really the time to invest in ways to do rapidly updating scenario analysis, multiple scenarios, to envision what the future could look like," Barriball said. "Get a tool set up and know how to aggregate the data in a way where when the context changes, you can rapidly update your forecast ... Long cycles and [monthly] forecasts in sales and operations planning are not going to be your friend in this situation."
Governmental measures to contain and reduce the spread of the novel coronavirus could be helpful for supply chains in the short-term. Ideally, as more consumers begin to stay home and out of stores, it could give auto and consumer manufacturers with shorter lead times breathing room to prevent or ease stock-outs in the coming weeks, Barriball said.
However, even firms with longer lead times such as the pharmaceutical and semi-conductor industries are not insulated from current economic volatility and recession concerns, as current U.S. government projections indicate the outbreak could take up to 18 months to be fully contained and the risk of cross-industry shortages remains high.