This is the first in a series of blogs exploring themes around supply chain risk in the light of the COVID-19 pandemic, which are covered in more detail in a new book, “Risk and Your Supply Chain: Preparing for the Next Global Crisis”. More details at the bottom of this page.
Have the supply chain impacts of the COVID-19 pandemic really been unprecedented? Or have teams simply failed to learn from the events of the past?
Throughout the last year, as COVID-19 has disrupted supply chains, impacted industries and thrown market expectations out the window, one word has repeatedly been used to describe the situation: unprecedented.
Yet, it’s not really, is it? At least not from a Procurement point of view.
While there’s no argument that this pandemic is unprecedented in terms of its scale and reach, there’s actually quite a large precedent for ‘COVID-like’ events – those that severely impact global supply chains. This has especially been the case over the last decade, and you can bet that COVID won’t be the last event of this scale that we see.
Earthquakes, hurricanes, disease, floods, tsunamis, economic uncertainties or any other natural, political, economic, or social event can all cause major, widespread disruption. And as business becomes increasingly global, with more interdependence across geographies, these big-ticket events will only grow in frequency and scale.
Brexit, for example, is about to materially alter the very nature of one of the world’s largest trading blocs – not to mention the individual constituent economies within it. And human encroachment on the natural world has created what experts are calling a perfect storm for future outbreaks.
So, the question we should be asking isn’t ‘how could we have seen this unprecedented event coming?’ But, ‘how can we make sure we’re better prepared for whatever the world throws at us next?’
The problem with ‘unprecedented’
From a Procurement perspective, the word unprecedented is problematic for a simple reason: It suggests that there was absolutely no way to predict that this kind of disruption was possible; that nothing could be done to stem its impacts. Where in reality, we know the opposite is true.
Whether it’s the European Foot and Mouth outbreak in 2001 or the 2009 flu pandemic, Procurement functions have weathered similar storms before. Yet, despite this, COVID seems to have taken many organisations by surprise and unable to effectively manage supply chain risk. Recent studies show that only 45% of businesses had a pandemic response prepared as part of their business continuity plans prior to December 2019.
As a result, by the end of last year around 56 percent of global retailers reported moderate supply chain disruption, and 12 percent of retailers reported heavy disruption.
There’s an old saying, one you’ve no doubt heard before, that tells us those who fail to learn from the mistakes of the past are doomed to repeat them. It’s an aphorism that has been attributed to everyone from Winston Churchill to George Santayana, and the reasons it’s so well-worn is quite simple: it’s one-hundred percent true.
Over the last two decades it’s become increasingly clear that when you’re dealing with global category management, markets, and supply chains, you need to expect the unexpected. Yet it seems that many organisations have failed to take this lesson on board.
Be prepared for the next disaster
So, how can Procurement teams ensure they’re prepared for whatever comes next and effectively manage supply chain risk?
Building more resilient supply chains and Procurement strategies, the kind that can weather storms like COVID, requires a significant amount of intelligence and procurement analytics. This includes real-time procurement dashboard with insights into current market conditions and, of course, lessons learnt from major past events.
For instance, your procurement teams need to know what kind of disruption different events are likely to bring, which geographies are most exposed to what kinds of risk, and where critical points of failure lie in your supplier portfolio. And, perhaps most importantly, what you can do to avoid those points of failure bringing your supply chain to its knees.
For example, if China closes all of its ports due to a travel ban, do you have suppliers elsewhere that can support you? If not, why not?
You also need in-depth procurement analysis into your individual suppliers, so you can assess their strengths and weaknesses and understand what their reactions are likely to be to different economic stimulus.
Look at which of your current suppliers have a proven track record of continuity in the face of disaster. And, conversely, which are likely to be unreliable when the worst happens – and what the impact of that will be on your supply chain management.
These are the kinds of details that can help you ensure the ‘unprecedented’ events of the future don’t have an unprecedented impact on your procurement strategy. And they’re the things you should be including in your procurement strategy today – because there’s always another disaster looming.
At The Smart Cube, we provide in-depth, data-driven Procurement analytics and insights, including supplier risk intelligence, to some of the world’s biggest organisations, helping them to prepare for the challenges of unpredictable markets.