Supply Chain Management in the Times of COVID-19
The current global pandemic has put corporate purchasing professionals to the test. It has placed them in the critical position of having to enable companies to successfully navigate their supply chain management operations. Furthermore, supply chain professionals contribute to the success and continuity of their businesses by taking measures to avoid disruptions in the flow of materials and other inputs that their organizations require. In many cases, it is necessary to search for alternative suppliers to ensure the steady and consistent flow of products and services necessary for effective supply chain management.
We have also seen buyers recently venturing into areas in which they are not typically active. This includes trying to acquire products and services with high demand, such as the purchase of personal protective equipment such as masks, thermometers, gloves, disinfectant hand gel, etc. Thus, adding to efforts that are being undertaken to mitigate the risks to the health and safety of personnel during the current pandemic.
What lessons will the COVID-19 crisis teach us and how will the role of supply chain management personnel within organizations change? In a recent webinar on supply chain management in times of COVID-19, Ricardo Mattenet, director of ABASPRO Procurement Partners and Country Manager and Instructor of the European Purchasing Institute (EIPM), together with Nicolás Avellaneda, Director of Sales for Latin America at Achilles, shared their perspectives on how the pandemic has impacted the purchasing function in organizations. They examine the sectors that have been the most affected and the valuable lessons we can learn from this crisis.
How to deal with the crisis as it relates to supply chain management
The priority of organizations must be to protect their employees. “Without buyers, there is no company, therefore it is very important that people’s health is preserved,” asserted Ricardo Mattenet during the presentation. He also pointed out that processes and forms of work must be adapted in such a way as to reduce the risk of contagion from COVID-19 to ensure the continuity of operations. To this end, companies have implemented a variety of risk mitigation measures.
According to a global survey recently conducted by Achilles, 84% of companies have chosen to maximize and expand opportunities for employees to work from home. About 75% of those surveyed have changed their commute and on-site office policies. Other preventive measures that organizations have taken include having fewer personnel in facilities, using personal protection equipment, reducing or canceling activities, revising access controls, and taking additional measures to control contractors’ activities.
Within the purchasing area of supply chain management, there is significant complexity and pressure. Greater effort and negotiations are now required to find supplies and services that previously were relatively easy to acquire. Mattenet recommends these measures to enhance the supply chain’s stability and reliability:
- Keep an emergency inventory: (coronavirus stock): ensure the accessibility of supplies related to the maintenance of the health of the company’s workers. Companies must be certain to acquire products for personal protection.
- Ensure that there are no shortages: look at what inventory levels are on hand. Determine how much is in transit, how much is in production, and if the critical importance of certain inputs to production has changed.
- Discard surpluses: any decision to reduce or stop the acquisition of supplies or services must be made from the perspective of the medium and long-term impact it will have on the supply chain. Additionally, this includes the management of relationships with company suppliers.
- Manage cash flow: it is necessary to review purchase orders that are pending delivery, as well as those to be issued, contracts in progress, contracts to be signed, and advance payments that have been made. Finally, cash flow must be adjusted to ensure that sufficient funds are available to address current priorities. Supply chain management carries with it the responsibility of ensuring suitable cash flow for operations that will enable the company to keep its supply chain running.
- Maintain visibility of the supply chain: review the supply chain in detail to know the status of its suppliers in order to be able to anticipate possible disruptions.
A recommended good practice in supply chain management is to include representatives of the purchasing area in the crisis management committees within the organizations. These individuals can assist in the development of protective strategies, as well as validate their feasibility from the point of view of supply.
The health of key supply chains
The measures to contain the spread of the COVID-19 virus have included the reduction or total cessation of productive activities, as well as the closure of international borders. This action has brought with it great negative economic consequences and disruptions in national and international supply chains. According to a report recently published by Dcode EFC, tourism and aviation have been among the sectors most affected in the short term by the crisis. On the contrary, other sectors such as pharmaceuticals or medical services and supplies have increased their activities in order to meet the increased demand for their products.
“For some sectors and countries throughout the world, the coronavirus has deepened pre-existing crises, as in the case of the oil and gas sector. For instance, before the advent of the pandemic, the world was already in a complicated situation due to oversupply and falling prices. prices.” Nicolas Avellaneda noted.
According to data from the Achilles company, when reviewing sectors considered key for a number of Latin American economies, such as Oil and Gas, as well as Energy, it can be observed that around 80% of the companies that make up these supply chains are medium-sized, small, or micro-business firms. A sizeable percentage of them maintain a vulnerable position. If the crisis continues, many suppliers will find themselves at financial risk. This would include liquidity problems and difficulties in meeting obligations such as the payment of salaries. In some cases, companies may require help from their respective governments to weather the crisis.
To mitigate the potential adverse impacts on the continuity of the production chain, it is necessary to pay greater attention to the situation of individual suppliers. Astute supply chain management personnel must actively monitor their financial indicators. This is achieved through having access to databases, reliable sources inside supplier firms, and working collaboratively to understand how purchasing can help them maintain their operations and survive the current crisis.
Lessons from the pandemic’s effect on supply chain mana
Some tips that have been observed to operate more effectively during these challenging times are:
1. Understand the risk: With regard to this, it is essential to analyze supplier data and benchmark suppliers with a collaborative approach. This must be done by identifying risks and developing mitigation plans.
2. Take action: This means in the development and implementation of contingency plans. Adapt processes, such as performing virtual audits. Use e-procurement tools, engage in supplier relationships management, and look for alternative vendor sources to mitigate possible risks.
3. Lean on experts: Seek external help to better understand and manage the supply chain, either through technological tools or advice and consultancy.
As the coronavirus pandemic subsides, supply chain management will never again be the same. The local and global recession caused by the pandemic will drive changes in practices and business models. For example, one aspect that has stood out during the crisis is the increasing practicality of e-commerce and deliveries through logistics service providers. Additionally, there have been some changes related to issues such as remote work, or changes in processes that were typically carried out in person. Many of the practices that have been promoted during the pandemic will be continued and will be part of what becomes the new normal.
