Posted: 28 Sep, 2021
The Covid-19 pandemic has led to unprecedented disruption to supply chains over the last 18 months. And while we may be emerging from the crisis, markets remain uncertain, as evidenced by the abrupt Carbon Dioxide shortage that occurred recently. With demand behaviour continually changing and increased costs and competition supply chains continue to face volatility.
Nowhere is volatility being seen more right now than in the UK’s petrol crisis. Caused not by a shortage of petrol, but by a shortage of HGV drivers to deliver petrol to the pumps, the knock-on effects are being felt all the way down the supply chain by companies and organisations that now can’t deliver their own goods and services.
Crises like this one demonstrate that supply chains consist of multiple interdependent elements, creating a house-of-cards effect where a problem with little-thought about supplier far away in the chain can be enough to break it.
While acute crises like the petrol crisis can be hard to mitigate against, companies all along the supply chain are emerging from Covid-19 with similar problems - limited cash reserves, difficulty overcoming Brexit red tape, materials shortages and sporadic lockdowns.
As companies look to recover from the pandemic, assessing the health of their supply chain must be a priority. Buyers cannot protect against events out of their control but they can look to increase the resilience of their supply chain, addressing vulnerabilities and protecting themselves as best as possible.
Supply chain mapping
The most effective way companies can understand the health of their suppliers and their supply chain as a whole is to create a map of key elements in the supply chain. Doing so means companies can understand where their suppliers are located, how much business is done with them, and how reliant they are on certain suppliers or certain locations. Overdependence and vulnerabilities can then be identified and addressed as needed.
Financial health check
The pandemic has had an acute impact companies and buyers need to understand how their suppliers have been affected and what their financial position is like in the wake of the crisis. In the current climate, many suppliers are willing to have open conversations about their financial health with buyers so companies should take the opportunity to ask.
Companies should have processes in place to regularly review their suppliers and understand their risk exposure in relation to each supplier in their network. Reviews should be wide-ranging, taking into account debt, plans for the future, cybersecurity systems and risks to reputational damage. Clothing retailers know all too well the risk to reputation of not thoroughly auditing their suppliers’ workshop practices and with most data breaches deriving from third parties, risk is important to assess and address. While supplier risk cannot be eliminated, it can be managed.
Strengthen supplier relationships
When crises hit, strong supplier relationships are more valuable than ever. Companies should maintain good communication and pay their invoices on time (or early) to become the customer of choice for their suppliers. By developing good relationships, companies may also be given early warning should a supplier get in to trouble.
Create new relationships
Covid-19 has taught us that overreliance on one supplier or suppliers from single locations presents risk. Companies would do well to expand their supply chain to a supply network where if one supplier fails or fails to deliver, other suppliers are ready and waiting to fill the gaps.
TMA UK is part of TMA, a global organisation that represents the interests of turnaround professionals as its members who have the skills needed to assist in these unprecedented times. If you need assistance, please contact our helpline on 0844 804 0116
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