What Manufactures Should Take Away From the Recent Supply Chain Disruptions
In the early stages of the Coronavirus pandemic, it was clear that disruption to the global and regional supply chains was one of manufacturers’ and owners of products’ key concerns. Now, as the pandemic has created a “new normal” with a new trading environment, it has left many manufacturers with a number of arising risks.
The impact of the COVID-19 outbreak on supply chains affects the manufacturing industry in several ways. Some of the effects might not have been anticipated, and could leave businesses with more risk than anticipated.
Supply chains are increasingly at risk of disruption and it can be argued that the greatest risks to business continuity lie in the wider chain of key suppliers and customers rather than within the company itself. Yet for the vast majority of organizations, business continuity planning remains a one-firm focused activity.
As a result of outsourcing, globalization and volatility in the trading environment, supply chain networks increase in complexity and so does disruption.
Learning from Recent Occurrences: Suez Canal Disruption
While the pandemic has been the key concern for global supply chains, recent events have shown that the risks are paramount. On March 23, 2021, the grounding of the Ever Green ship in the Suez canal has inspired worldwide media interest and highlighted the fragility of global supply chains. In 2019, container ships (of all sizes) carried approximately US$4 trillion of goods. The largest of these ships now range to 400 meters (1,312 feet) long and 59 meters (193 feet) wide, and are capable of carrying up to 24,000 20-foot equivalent unit (TEU) boxes on each voyage. The concentration of risk is clear.
According to a variety of media reports, the Ever Given was blown by strong winds and became stuck on the banks of and blocked the Suez Canal near its southern end. Approximately 12% of global trade uses the canal in a series of daily northbound and southbound convoys, carrying close to US$ 10 billion in goods per day, according to various public sources. The Suez Canal Authority temporarily suspended navigation in the canal on March 25 until the ship was successfully moved on March 29.
Despite the few days disruption, it has caused a great deal of uncertainty at this time, while ship and cargo owners consider their contingency plans and alternative routes. For manufactures and distributors, it also raised concerns of supply chain disruption. Events such as the Ever Given grounding highlight that such failure to perform may be both unexpected and outside a company’s control.
The Way forward
Manufacturers must identify their key vulnerabilities, current and future risks and take steps to keep supply chains up and running, and plan for their effective recovery. Furthermore, businesses and their suppliers should be flexible, resilient and adaptable against any disruptive event.
Protection and Recovery: Take Measures Now
Most manufacturers already have identified critical suppliers, distributors and 3rd party stakeholders, but don’t necessarily have an effective supply chain resilience process to ensure continuity of operations, meeting strategic objectives. That means they still need to map and understand a significant but hidden vulnerability in their supply chains — and that it's difficult to predict the impact of shortages and stoppages on their output and trade commitments. A trusted insurance broker and risk adviser can provide businesses with the necessary guidance and insights to be able navigate through any supply chain risks with the ability to protect their business, plan for recovery, and plan for future growth.
No company operates in isolation, so it's essential to identify continuity risks, any potential bottlenecks, and any single points of failure. By building a simple, four-step action plan, manufacturers can manage the impact of the COVID-19 outbreak or a similar future event, such as the Suez Canal closure. These four steps include:
- Prevention: Talk to your critical suppliers to ensure they have plans to respond to the constant changes of the outbreak and to understand what these plans include. But take other measures to protect your interests in case those plans aren't effective — identify alternative suppliers you can use as backups and review any contractual liabilities you could face in the event of delays, cancellations, or quality issues. Talk to your insurance and risk adviser to learn more about traditional and non-traditional risk transfer solutions and how it can help protect you.
- Response: Document, test and plan for supply chain failure through effectively documented continuity and resilient plans, including incident / crisis management plans. It is critical to also identify effective business continuity strategies for raw materials, supplies and parts to ensure continuity of operations. This can include stockpiling, alternate vendors, 3rd party agreements…etc. Continue to communicate with existing suppliers, encouraging openness about their level of disruption.
- Recovery: Streamline supply chain resilience in all critical functions of the organization to enable greater resilience and meeting strategic and long term objectives. Review lessons learned with critical suppliers to understand how things could be improved during the next disruptive event. Explore and invoke any relevant contract clauses that may help limit costs or accelerate your recovery. And determine whether any failures of contract KPIs constitute a breach worthy of compensation.
- Rebound: Given the complexity of rebooting companies and supply chains at different speeds in different places, the time to begin preparing a rebound strategy is now. Businesses who have the ability to reimagine the operating models and portfolio of offerings will find opportunities. Those that shape and benefit from the future will be the business that can imagine it and implement the right strategies.
By building robust action plans, manufacturers can better build business resilience plans on short notice, prioritize their people, monitor potential pinch points, and implement other measures to stay resilient during this crisis and the next one.