By Tatiana Walk-Morris
At the beginning of the Covid-19 pandemic, businesses shut down, shelter-in-place orders went into effect and shelves became bare—quickly. Stores ran out of must-have items consumers needed, such as hand sanitizer, disinfectant wipes and, perhaps most memorably, toilet paper. Nonessential and essential businesses pivoted at a moment’s notice, but empty shelves and out-of-stock merchandise highlighted the importance of effectively managing supply chains.
Now that companies have had some time to adjust their remote and on-site workforces, they need to recognize how crucial it is to better understand their supply chains, especially amid uncertainty.
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To guide companies on where to start, Mike Varney, partner in consulting services at the accounting, consulting and technology firm Crowe, offered some insights. Varney focuses on communicating with vendors, assessing supply chain risk and visibility and identifying supplier alternatives to minimize future disruptions. Here’s a look at how this approach helps.
Communicate With Suppliers
To better understand its supply chain, a company must first assess what’s critical—starting with high-volume and high-margin products—and then nurture effective communication with suppliers. “Gaining visibility into supply chain risks allows companies to maneuver their resources proactively rather than reacting to disruptions at a moment’s notice,” Varney says.
“A close examination of a company’s supply chain risks might entail calls, reviewing or visiting with suppliers and harnessing supply chain analytics,” he says. Before the Covid-19 pandemic, larger firms even put together supplier conferences to keep them informed of the company’s direction. But each company’s assessment and communication procedure will vary based on its size, market and demand, among other factors.
“Crowe sometimes provides supplier risk assessments for companies, and those companies will then share the results with their suppliers,” Varney says. That kind of transparent communication between companies and their suppliers can help reduce supply chain risks.
Today, companies have more tech tools at their disposal to understand the ebbs and flows of their supply chains more efficiently. Unfortunately, many companies still rely on traditional spreadsheets to manage their supply chains, Varney adds.
Plan For Disruptions
“Once companies know which products would be detrimental to their bottom line if they were no longer available, they must develop a plan for how to respond to a supply chain disruption that renders it difficult to restock the items critical to the business,” Varney says.
“Beyond communicating with suppliers regularly, companies also need to make sure that they have contract terms to protect them from supply chain disruptions. The contract terms should permit buyers to have greater understanding of their suppliers’ operations,” Varney says.
“One client, for example, had a solid relationship with a supplier that provided it with multiple products. The company was given purview into the supplier’s disaster recovery plan and supply chain risk mitigation efforts, allowing it to understand what protocols were in place in case of emergency,” Varney says.
“This pandemic has driven home the point that the risk management element within the supply chain is as important as being efficient and lean,” Varney says. “When board members ask the question ‘Why weren’t we prepared?’ company management can no longer say, ‘Well, who would have thought of that?’”
Adjust To Reduce Costs And Risks
Though the Covid-19 pandemic has become top of mind for businesses internationally, trade disagreements between the United States and other countries remain another prominent consideration. “The United States is in an election year, so having visibility into your supply chain allows you to adjust your operations regardless of what is happening in geopolitics,” Varney says.
For companies concerned about tariffs on their goods sourced from abroad, Varney suggests that they clarify where their goods are coming from and evaluate if it is practical to alter or adjust their sourcing to either avoid or reduce tariffs. For example, companies could evaluate whether they could switch some of their supply from China to Central or South American countries.
“Organizations, in general, have gotten pretty good in their supply chain procurement functions from an efficiency perspective, but there’s always room to improve,” Varney says. “Companies have actually taken advantage of this ‘downtime’ to drive some additional improvements within their processes.”
In response to the major disruptions of 2020, now is a good time for companies to rethink how they manage suppliers. Tackling this challenge sooner than later can lead to fewer hurdles—and lower costs—in the future.
Want to learn more about how to achieve business resilience? Find the latest insights from Crowe on how to prepare your people, partners and processes to support your company throughout today’s needs and tomorrow’s evolving landscape.
