This is an opinion piece written by Nate Evans, co-founder and chief experience officer at Fictiv. Opinions are the author's own.
Fresh from the predictable supply chain disruption of the Lunar New Year, we find ourselves in the midst of a crisis that could have scarcely come at a worse time. The coronavirus has piled disruption on disruption for those who source parts and products in China. And this time we do not have clarity on when it will end.
This current situation is, without doubt, a major disruption to China’s manufacturing and supply chain. We already know that Wuhan is in shut down and we are seeing impacts elsewhere in China, with factories in Shanghai and Shenzhen remaining closed after the Lunar New Year for an additional seven to 10 days. That could easily turn into a longer period. Currently, authorities are suggesting the virus may not peak for another two to three weeks, which means disruption could last well into, and even beyond, the middle of February.
Given that the outbreak occurred during Chinese New Year (one of the world’s largest human migrations), it’s close to impossible to know how far the virus has spread or how quickly it can be contained. Disruption to this extent presents serious challenges, and the lack of clarity around when things may return to normal just adds variability.
What can be done?
This isn’t a situation to ignore, though it isn’t a time to panic either. Much of the advice we shared with our partners during the lead up to Chinese New Year is still applicable for this new crisis, particularly around planning and visibility. Some of the key suggestions we made around planning for the Lunar New Year are:
- Ensure strong visibility throughout this period, establishing initial and back up lines of communication that are open, honest and robust.
- Increase quality vigilance. Parts can sometimes be rushed during times of supply chain pressure before or immediately after a shutdown, planned or unplanned.
- Plan for a slower period after the break. The production ramp-up can be seriously impacted as people return to work.
- Expect a ripple effect throughout the logistics sector, particularly customs clearance, with demand spiking heavily right after a shutdown.
Now more than ever, you need complete transparency from your vendors. They might not be able to tell you exactly when your parts will be ready, but they can certainly tell you where the parts are in the production cycle. Even knowing whether your parts have entered production can be a challenge that may impact future decision making about when and what to order.
If your supply chain transparency is up to scratch you should already have some or all of this information. Remember, suppliers entered this period with the best intention of returning to work, firing up their machines, and getting your parts completed and delivered. They are the ones suffering the most right now.
As with all supply chain disruption and mitigation planning, the first stage is to figure out what is critical and what is not. If part production is not yet underway, perhaps parts can be diverted to a manufacturer in another unaffected geography without too much of a cost increase. While not ideal, paying more during this period is most likely better than a failure to deliver your final product.
This is a time when agility in the supply chain, specifically having multiple suppliers in varying geographies, will be extraordinarily valuable. It’s a good time to make the safe bet of ordering additional parts, rather than gamble on an outcome that can’t be guaranteed as slowdowns continue.
Ordering additional parts may not be as simple as you’d like. There is inherent risk in switching vendors and ramping up production with a new supplier may require time and additional resources. This is where a more diverse supply chain is important. It is good to know that when something like this happens an alternative vendor is on your AVL (Approved Vendor List) and is ready to step in and pick up the slack.
Always have a plan B, C and D
Supply chain disruption is a reality of life. There will be more viruses, natural disasters and other emergencies, so building a backup plan is essential. Unfortunately, for some, a backup plan might have been a second source in China or a source that relies on China for some key material for its production.
In the current situation, it’s time to kick a Plan C into action to ensure the supply chain stays intact and robust. We all want to be ‘lean’, keep our AVL tight and work with JIT (just-in-time) principles, but sometimes you simply need more choices and more than one contingency plan.
Visibility upstream will help you understand if your first choice and second choice vendors share dependencies, like a common material source. Plan C should include a supply chain map that extends all the way to raw materials independently — potentially meaning taking operations outside of Asia entirely.
Information is everything
Keeping all channels of communication open has never been more important. We’re in an unpredictable and fast-moving situation right now. Supply chain diversity, complete transparency, real-time data and solid contingency planning will help, but many companies are being negatively affected.
After the outbreak is contained and operations get back to normal, companies will want to review their supply chains to evaluate performance and ensure readiness for the next disruption. It is important to learn from this crisis and use the experience to build a supply chain that is lean, economic, robust and agile for the future.