As the COVID-19 pandemic drags on globally, supply chain disruptions continue getting worse and worse. Most main U.S. ports are logjammed with vessels waiting more than two weeks to load and unload, while a shortage of truckers means containers are piling up at port facilities.
On top of that, each new wave of coronavirus infections results in more factories suspending operations, particularly in Asia. In addition, material shortages are forcing U.S. factories to stop production as they are missing much-needed parts and materials.
Most notably, the shortage of microchips has forced makers of cars, appliances and industrial machinery to halt operations.
All of these factors have upended supply chains, leaving many companies without materials and products.
Whenever there is a supply chain disruption, companies suffer as products and key parts deliveries are delayed indefinitely. Prudent companies address these challenges by building safeguards and contingencies into their supply chains ahead of time.
They enhance those risk management efforts by purchasing contingent business interruption insurance, which will cover lost profits if an event shuts down critical suppliers or major customers.
It’s important that you create a solid plan for dealing with disruptions to your supply chain.
Understanding your supply chain
You’ll be best able to reduce the effects of supply chain disruptions on your business by identifying the risks within your supply chain and developing ways to mitigate them.
You should document this process in your risk management plan, which is part of your overall business continuity plan.
There are four main types of external supply chain risks, which are largely outside of a business’s control:
- Flow interruptions. Problems caused by interruptions to the movement of products, like finished goods, raw materials or parts.
- Environmental risks. Economic, social, political, terrorism threat and climate factors that can affect the supply chain.
- Business risks. Problems caused by factors like a supplier’s poor financial or general stability, or the purchase or sale of supplier companies by other entities.
- Physical plant risks. Problems caused by issues at a supplier’s facility or regulatory compliance. For example, your key supplier could have a machinery breakdown and/or regulators may shut the facility down.
Developing a plan
The best way to manage a supply chain disruption is to prepare for it. Start by undertaking a business impact analysis to prepare your company.
Form a team of key personnel that should include shipping and receiving, and management and supervisors involved in your key processes. The team should:
- Identify alternatives to key suppliers in advance. You don’t want to be scrambling in the midst of a crisis. One option is to contract with an alternative supplier in advance, so you can certify them and ensure they can ramp up if you lose a critical supplier.
- Model the impact of disruptions on your sourcing and inventory strategies for the four supply chain risks listed above. Under each of the scenarios, think about how non-delivery of a key part or material would affect your operations.