The coronavirus pandemic has caused delays and other frustrations in businesses’ global supply chains, highlighting how vulnerable many are to unexpected disruption. Companies caught flat-footed should learn their lesson from this crisis and begin making fundamental changes now to prepare their supply chains for future shocks.
The current supply chain disruption is impacting consumer demand, labor, materials, and delivery—forcing businesses that rely on global sourcing to make tough choices. According to a recent PwC survey of finance leaders in the U.S. and Mexico, 31% indicated supply chain issues as one of their top three concerns related to the COVID-19 outbreak.
I’ve managed many crises with serious supply chain implications. The lessons I learned from them have helped me build a playbook for dealing with setbacks that I’ve used ever since.
First, it’s essential to digitize as many processes as possible in the supply chain. A fully digital supply chain strategy can have a significant positive impact on operations. A 2016 Boston Consulting Group study found that adopting digital supply chain technologies helped companies achieve, on average, 10% higher product availability and a 25% faster response to market changes compared to companies lagging in digitization.
To that end, companies like Cloudleaf (where I’m a strategic advisor and investor) are using disruptive technologies like Internet of Things, A.I., machine learning, and advanced analytics to create a digital companion to existing supply chains. These technologies allow supply chain leaders to glean diagnostic and predictive insights from the massive number of events constantly occurring within their chains, helping leaders to better understand the health of the chain, plan for future crises, and rectify problems in real time.
Second, businesses should use the information collected from these digital tools to build a crisis management team. During my time leading Cisco, we developed business continuity plans with our manufacturing facilities team that focused on preparing for disrupted supply from manufacturing partners and potential quality issues that might arise in our supply chain during a crisis.
Our supply chain risk management team monitored disruptions globally 24 hours a day, seven days a week. If we noticed a situation with the potential to disrupt our supply chain, we found out which sectors of the supply chain might be impacted, which products or parts were made by those sectors, and if our revenue or customers were likely to be negatively affected. This team communicated constantly with another cross-functional team we built to execute our response playbook efficiently, creating a seamless process to manage a supply chain issue from start to finish.
Risk management teams should hold preparedness training for their entire organizations, so even workers who don’t normally focus on supply chain risks aren’t caught off-guard if a disruption arises. Suppliers should be included in these training sessions.
Third, companies should gain as much visibility as they can into the details of their supply chain. Lack of visibility can frustrate a company’s ability to plan ahead and retard the decision-making process. On the flip side, better visibility can help risk management teams more effectively anticipate disruptions.
To accomplish this, businesses should map out all of the nodes in their supply chain. They should do their best to identify the points in the chain about which they know little and do everything they can to learn about those suppliers. They should also research what kind of impact a problem at a low-visibility point in the chain could have on the company itself and its trade partners.
Companies should build flexibility into the production process by identifying these weak points in the chain and ensuring alternate suppliers are available at all times. Products should be designed so that parts that can be produced in multiple factories in multiple countries.
The coronavirus crisis is hitting many businesses hard, but it’s also an opportunity for them to get ready for the next disruption. If they start soon, the next supply chain shock might not wreak as much damage as this one has.
John Chambers is the former executive chairman and CEO of Cisco Systems and current CEO and founder of JC2 Ventures.
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