Why the COVID-19 crisis should make companies think about the resilience of their supply chains
The covid-19 crisis should prompt companies to “rethink and transform” global supply chain models, according to Franck Baron, the chairman of the Pan-Asia Risk and Insurance Management Association.
Seven pacific rim nations signed a pledge this month to maintain open supply chains as the covid-19 crisis shows no sign of slowing. The agreement between Australia, Brunei, Canada, Chile, Myanmar, New Zealand and Singapore is a collective response to combat the virus outbreak, which has led to global lockdowns and financial turmoil.
While some countries have ensured their supply chains and trade remains open, the senior risk professional says the crisis should make companies think about the resilience of their supply chains.
Organisations are poised for significant upheaval with primary and secondary suppliers as the world remains in lockdown over the deadly virus.
“Covid-19 does have the potential to be this global-scale event that finally forces many companies, and entire industries, to rethink and transform their global supply chain model,” Baron says.
“Financial efficiency does have limits, and we are reaching them,” he adds. “This another wake-up call for better resiliency which means a more holistic approach about economic advantage and ROI. An optimised supply-chain is first and foremost a fragilized one as the cost measurement does not yet include the risk of disruption and business interruption.
“Such externalities need to be factored in when it comes to the overall effectiveness measurement of such supply chain decisions. This fragility is even bigger when today’s supply chain does not allow for visibility on Tier 2 suppliers,” Baron adds.
Baron says a rethink is needed after organisations spent years minimising costs and reducing stocks.
“The consequence has been largely, and voluntarily, ignored: the disappearance of buffers and flexibility have disappeared; organisations can’t absorb disruptions anymore.”
Risk professionals have the opportunity to be the “voice of balance and reason” during and after the crisis, Baron says.
“Ultimately, it is about having a true and honest holistic approach about supply-chain design that should factor-in the business continuity and ultimate resilience of the organisation in the long run. Financial performance is still key, and should be balanced with the ability (and ability) to absorb shocks.”
Baron adds: “Risk management must be an integral [part] of supply chain resiliency which should include supply chain risk and inventory strategies to better buffer stock, multi-sourced supplier contracts, alternative transportation and sourcing lanes and balanced manufacturing.”