RISK MITIGATION – PREREQUISITE FOR SURVIVAL OF THE FITTEST IN THE POST-COVID-19 PANDEMIC WORLD

July 24, 2020

The COVID-19 pandemic has inflicted a significantly greater damage on human lives and the global economy than the recent natural disasters of the eruption of a volcano in Iceland, the Japanese earthquake and tsunami, Thailand floods, and Hurricanes Maria and Harvey. Its disruptions have been more onerous than the geopolitical tensions which rocked the marketplace in the form of trade restrictions, exemplified by the U.S.-China trade war; economic sanctions, such as those on Chinese entities including COSCO Shipping subsidiaries; export controls, like the ones imposed by Japan on three chemical materials, which threatened to disrupt the global semiconductor manufacturing industry; and Brexit. While the USA has been caught flat-footed, the global supply chain has been severely exposed and risk management must become an all-encompassing strategy for every organization. The objective of risk mitigation is to achieve a quantum increase in resiliency and agility across the market by addressing the dimensions of risk, namely severity, likelihood, and velocity. While the prevailing wisdom is to learn from the current experiences, the fundamental task is to assess the risk, prioritize the areas of vulnerability and begin to reconfigure the supply chain of your enterprise. Simply put, the challenge is overwhelming while the problems are unfolding.

In a broad manner of scoping what must be done, one must break the supply chain into three segments, namely the inbound supply side, the enterprise, and the outbound demand fulfillment. Every mode of failure or disruption must be identified in each of the three segments. For example, on the supply side matters of single source, supplier financial viability, their raw material availability and quality capability, manufacturing capacity, level of systems integration, proximity to fault lines and weather extremities,  are some of the factors to be critically analyzed. In case of the enterprise, the people, processes and technologies must be examined for inherent risk. Finally, for demand delivery segment, modes of viable transportation, systems, processes, inventory management, tracking and tracing of shipments and temperature-control of products are major aspects to be considered for potential vulnerabilities. All this assessment is done in the context of political and economic factors of trading countries, climate and geographical considerations and infrastructure linkages between suppliers and producers.  

Visibility and agility have emerged as the major contributors to resiliency for they drive the reconfiguration of sourcing, manufacturing and distribution in a rapid manner. Balancing supply chain cost and efficiency with resilience has become the unprecedented challenge in the post-COVID-19 timeframe. Multiple sources of supply and larger stockpiles on hand become the cost of doing business. Favorable government policies and actions will help optimize the strategy of an enterprise. One thing is for sure, the COVID-19 will force the survival of the fittest and those who fail to transform themselves will become extinct. The survivors will adopt a paradigm shift where there will be additional cost of doing business and balance sheets with larger inventories and assets.

Here is a Check List of potential solutions to build the required resilience and agility in the supply chain:

·       Multiple Sourcing of Supply

·       Collaborative Systems with Suppliers

·       Inventory in Excess of Safety Stocks Placed Strategically

·       Manufacturing Network Diversification

·       Ecosystem Collaboration

·       Information Sharing with Trading partners and Real Time Visibility Across the Supply Chain

·       Leverage Governmental Support for Industry

Preparation and immunization of the enterprise for a Black Swan event must be deployed in an environment of collaboration for a rising tide lifts all boats.

Submitted by Devendra Mishra, Executive Director, BSMA

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