4 minute read 19 Mar 2020
Coronavirus: what are your options in the event of a disruption in your supply chain?

Coronavirus: what are your options in the event of a disruption in your supply chain?

By

Filip Herremans

EY Belgium Advisory Partner

Trusted Supply Chain advisor. Pragmatic and hands-on. Team player. Cycling enthusiast. Caring husband and father.

4 minute read 19 Mar 2020

Suddenly, a crisis comes along that disrupts the smooth running of your supply chain. By following a number of measures, you can lessen the consequences and potentially anticipate a new crisis.

The vulnerability of companies to crises impacting the supply chain is greater than ever. That is why it is increasingly important to take various measures to strengthen the supply chain, both in weakening and preventing crises. Setting out a number of emergency scenarios is the most important, but even if these are not available, there are some short-term actions that can be of help.

Supply chains have become more vulnerable

Several factors have made companies more vulnerable than before to crises of all kinds that affect the proper functioning of their supply chains. Globalization is one of them: there is a greater presence in, for example, Asia or Latin America, which makes the chain longer, more cumbersome and also riskier. But the element of competition has also played a role here. This puts pressure on the cost, which also reduces the reserves. Therefore, when a disruption occurs, it is more severe. That often means the scope of the damage is bigger.

A few examples

Goods are a typical example of this. From an accounting point of view, a stock of goods is an asset on the balance sheet, it is cash that is stuck and cannot be used for other purposes. Given the pressure on prices, many companies are starting to reduce stocks, which makes them more susceptible to a crisis. Another illustration is working with different suppliers to supply critical materials. Limiting this to one supplier is cheaper but increases the risk when that supplier ends up having difficulties delivering.

Appointing a Crisis Management Team

Does it need saying that crises can take on different forms? Natural disasters of all kinds, political instability, social unrest or the latest example: the coronavirus. Prevention is better than cure, but that does not mean that measures cannot be taken in the short term. Setting up a fully-fledged crisis management team usually offers great added value. One condition is that it is composed of people who, in terms of workload, are given sufficient room to fully discharge their duties. In other words, this team is given priority over everything else.

It may sound a bit paradoxical, but crises, especially dealing with them, often carry enormous opportunities.
Filip Herremans
EY Belgium Advisory Partner

Setting priorities is crucial

Providing stability is an absolute must, not least by communicating with everyone, starting with the employees, who are most worried. It is also necessary to identify critical elements in the supply chain, along the entire length of the chain. What about suppliers? Are there problematic hubs? Are there critical materials? But equally important is to mind your own customers, in other words: how does the chain end? Who are the A-customers that account for most of the turnover and margin? It is necessary to continuously consider the available alternatives. Can another hub be used? And is it perhaps worthwhile to give one customer priority over another? Prioritizing is the name of the game when dealing with situations like this.

Learning lessons from crises

It may sound a bit paradoxical, but crises, especially dealing with them, often carry enormous opportunities. They teach you a lot about your own approach. Vulnerabilities become clear but dealing with these alternatives and setting priorities can make you stronger. Many companies have already succeeded in surpassing their previous results after dealing with a crisis. These lessons, in turn, offer opportunities in preparing for the next crises. The recent difficulties with the coronavirus serve as an illustration of this. It shows what can happen when such a virus emerges. But it also shows us what needs to be done next time it happens.

Supply Chain Resilience

Supply Chain Resilience is the answer to crises, in other words, the resilience, or lack thereof, of the supply chain to deal with such incidents. The story has several phases and often finds its inspiration in the way previous crises were dealt with. What did we do last time and was it sufficient? What can we do differently and better? But also, of course: what are the potential crises that affect us. This often depends on region and sector. Once such scenarios have been drawn up, it is about closely monitoring the crisis once it occurs. This is not a snapshot, but a permanent exercise. Bringing these first two phases together then leads to identifying and implementing the most appropriate actions.

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Summary

Crises that affect the supply chain come in many forms (natural disasters, political instability or in the health care sector, as now being illustrated by the coronavirus). Increased globalization and competition mean that companies have fewer reserves to deal with such incidents. If a disruption occurs, a number of measures can be taken in the short term to contain the effects. The most important thing, however, is to anticipate a crisis by working out possible alternative scenarios.

About this article

By

Filip Herremans

EY Belgium Advisory Partner

Trusted Supply Chain advisor. Pragmatic and hands-on. Team player. Cycling enthusiast. Caring husband and father.