Two Steps to Protect Your Supply Chain

By Sharon Lo, Managing Editor, DTJ & The Source

A few weeks ago, The Source looked at the effects the Coronavirus, now called COVID-19, was having or was expected to have on certain transportation-related areas, including within supply chains. In this instance, the potential for supply chain disruption was and remains extraordinarily high. But significant risks to your supply chain—whether they be from the outbreak of a disease, natural disasters, political unrest, war, cyber attack, or other circumstances—always exist.

So while we are still waiting to see how far-reaching the effects of COVID-19 will be, one thing is certain: Whether it’s COVID-19 or something else, it’s imperative to take steps to protect your supply chain before a crisis occurs.

What are some steps you can take to protect your supply chain? While some steps will be specific to the type of crisis, there are two steps you can take today to get you started.

IDENTIFY RISKS
Consider Your Suppliers
Map out your first, second, and third-tier suppliers. Ideally, your procurement system will do this for you. When an emergency occurs, this map will allow you to contact suppliers to see how you can help.

It will also allow you to identify areas where the greatest risk exists. Pinpoint vulnerabilities such as single-source components. Consider ways you can diversify the regions or suppliers you use. Create plans for alternative suppliers. Invest in modeling capabilities to give suppliers accurate forecasts based on the shifts in demand. 

Review Contracts
Review your contractual obligations to identify any rights and requirements under those contracts. As you begin to see areas where it will become difficult to fulfill your requirements, consider how to mitigate your legal risks.

Document everything, including the efforts you make to perform your obligations under the contract. If you do have to declare force majeure or otherwise excuse performance, you may need to be able to show not just disruption to the supply chain, but that the disruption prevented or delayed performance under the contract.

COMMUNICATE
Involve Your Team
You may have specific people who, by nature of their position within your organization, are in charge of responding to a crisis event. However, that responsibility can quickly shift. If you are lucky enough to have teams in multiple locations, consider how to create redundancies that will allow your business to continue if one office or one region cannot operate. Everyone in your organization should be aware of plans and actions to take when needed.

Plan on Keeping Other Stakeholders in the Loop
Consider who will need—and want—to know your plans and circumstances, besides your internal team of managers and employees, suppliers, and contract counterparties we have already mentioned. These may include customers, lenders, investors, and the public, among others. Early and open communication is key, and emphasizing clear messages will help mitigate rumors and panic.

While every emergency brings its own unique set of circumstances that are impossible to fully plan for, if you commit to taking deliberate steps on a regular basis towards protecting your supply chain, it will benefit you when a crisis occurs.