COVID-19 is already having a strong impact on the global supply chain and is requiring companies to radically adapt the way their Purchasing Department operates to offset potential problems with suppliers.
As the virus spreads, supply chain disruptions are becoming more frequent, as are consumer habits. In order for companies to meet product launch and delivery deadlines, purchasing management needs to function properly, constantly monitoring the supply chain and finding ways to avoid a collapse that is looming.
The effects felt so far have been largely felt in China. Since many inputs for companies and retailers are produced in that country, with the shutdown of factories, many companies have been forced to seek other suppliers – in some cases, they have also been forced to stop operations.
Impacts on Purchasing Management
The best word to define Purchasing Management in a time of crisis is: resilience. A resilient supply chain must be able to detect risks of interruption early and quickly seek alternatives. To do this, it is not enough to know your supplier well; you need to go deeper and know who that supplier's partners are, and so on. Without this mapping, it is difficult to know the risks and most vulnerable points in the supply chain.
It is important to note that any action taken now to mitigate the impacts of the coronavirus can help build the resilience needed for future challenges.
What to do? McKinsey consultancy offers some tips:
- Create transparency across the various layers of the supply chain
It is necessary to identify which supplies originate from risk areas, which cannot be replaced quickly, and to monitor delivery times and inventory levels, creating alerts for possible interruptions. Mapping the supply chain and analyzing this information allows you to find suppliers that may present some risk in the future, at all levels. - Estimate available inventory along the value chain
As part of supplier mapping, it is necessary to gather information about the amount of inventory available throughout the value chain. This analysis helps to plan the company's ability to maintain its operations during periods of economic acceleration. - Realistically assess demand
Crises can increase or reduce demand, making it difficult to make a realistic assessment. Analysis tools must look for reliable information related to demand in the short and medium term to determine the real need for supplies to keep the operation running efficiently. - Identify and estimate logistics capacity
Analyzing current and future logistics capacity is essential to create an effective strategy to avoid problems with product delivery times or shortages. Good logistics management is essential to adapt quickly in times of crisis. - Manage cash and working capital
Understanding how supply chain issues impact a company's finances is essential for efficient Purchasing Management. Therefore, Purchasing professionals need to have the necessary tools to negotiate contracts with suppliers in an intelligent manner.
Once risks have been identified, the Purchasing Department can create strategies to monitor potential vulnerabilities throughout the supply chain and strengthen the entire supplier ecosystem. The COSTDRIVERS platform provides the information your company needs to analyze risks in the supply chain. Contact Us and get to know our services.