The coronavirus pandemic has disrupted supply chains around the globe and brought intense scrutiny to management strategies. Manufacturing industries such as apparel, auto parts and semiconductors have been hit particularly hard as factories shut down in China, followed by other global supply regions. The abrupt shift in shopping patterns and demand for certain consumer goods and medical supplies compounded the problem and revealed the risk of maintaining small inventories through just-in-time sourcing.
Nearly 75 percent of companies surveyed by The Institute for Supply Management in late February reported some type of coronavirus-related supply-chain disruption. Of those, 44 percent did not yet have a plan for dealing with the disruption. Now, roughly six weeks later, the scope of the outbreak and disruptions has magnified. But companies are formulating response plans.
The consensus among experts is that transparency is the critical first step towards understanding the source of current disruptions and getting ahead of future turmoil that’s bound to occur as coronavirus responses ramp up and down in different countries and regions. McKinsey & Company wrote in a recent article that the first step companies should take right away is to:
“Create transparency on multitier supply chains, establishing a list of critical components, determining the origin of supply, and identifying alternative sources.”
Gartner echoed this advice, and Deloitte went as far as to call for a new supply chain model, stating that COVID-19 is revealing how many companies are unaware of the vulnerability of their supply chain relationships. “Fortunately, new supply chain technologies are emerging that dramatically improve visibility across the end-to-end supply chain and support companies’ ability to resist such shocks,” the consulting firm wrote.
Researchers and ESG advocates have been warning of social and economic disruptions for years, as the unavoidable results of climate change, resource depletion and epidemics like COVID-19. In this broader context, supply chain transparency is much more than just a short-term strategy. It’s the basis for building long-term resiliency and responsible-sourcing programs that help to mitigate—or eventually solve—the underlying problems.
Transparency means knowing where the materials and components in products originate. But that’s just the start. True supply chain transparency provides actionable information that can be used to influence the regional diversification needed to protect against supply-chain disruption. It also provides insights that can be used to improve quality, cost, and a whole array of ESG factors, such as labor rights and environmental impacts.
COVID-19 has accelerated the push for supply-chain transparency that was already being driven by trends toward ESG investing and integrated reporting. “The recent volatility in financial markets due to the coronavirus pandemic could provide investors with more of an incentive to grill companies on nonfinancial risks,” wrote the Wall Street Journal on March 25. “But the pandemic has demonstrated on a large scale the importance of other factors that are paramount to ESG investors. Among them: disaster preparedness, continuity planning and employee treatment through benefits such as paid sick leave, as companies direct employees to work from home.”
The extent and depth of change that COVID-19 will cause in the global economy is unknown. But one thing is near certain. In the future, greater transparency will be a requisite for responsible supply chain management and for warning leadership of potential supply constraints or disruption.
In response to COVID-19’s impact on global business, SupplyShift is offering a free supply chain mapping tool to help companies quantify the impact of COVID-19 on multi-tier supply chains. Click here to learn more and register.