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As the effects of COVID-19 continue to unfold, many companies have found themselves in a situation for which they were unprepared. Without implementing proper crisis preparation tactics, companies will continue to suffer, as businesses deal with future unexpected occurrences. Being prepared for a potential supply chain disruption, allows companies to work proactively rather than having to react without time to adequately consider their options.
A few companies, however, have invested the time and resources into planning for disruption in their supply network. In mapping their supply network, they are better equipped to view the structure of their supply chains and what needs their attention first. The moment a disruption occurs, prepared companies can change course based on their research. They know which suppliers, sites, parts, and products they need to acquire and which ones will be at risk of closing so they can obtain what they need before everyone else.
Although there have been quite a few supply-chain disruptions caused by disasters, some companies still don’t put the resources into planning for these situations. There are reasons for this lack of preparation and potential solutions to ensure companies are ready for any unforeseen circumstances.
One reason that some companies decide against supply network mapping is that it can be an expensive, time-consuming task. It takes a lot of people and time to look into each supplier and those supplier’s suppliers and so on, but in the end, it is the costs and time are well worth the outcome when your company is more prepared and ready to face any challenge that arises in the future.
There are a few approaches to supply network mapping. The most common way is to use the bill of materials and look at the key components. Usually, it is the top 5 products that produce the most revenue and continue to go down by their suppliers, and their suppliers, all the way down to the raw material suppliers. The goal is to go down as far as possible because there can be critical suppliers down the line that can be critical to the company’s survival.
Your supply network map should also include information about the activities that the main site performs and other sites that could do the same action as the primary site. It should also include how long the shipping might take from the other sites as opposed to the primary site.
Something else people forget to consider when looking at the process is that cost-savings, not revenue assurance, is typically the best way to measure procurement. The method of procuring supplies is usually done with the lowest possible cost in mind. When this process has been disrupted, companies typically have to use expedited shipping or premium purchasing to cover their tracks. Supply network mapping would easily mitigate the costs associated with this disruption.
The company can best protect itself by bringing together employees from various departments, including procurement, logistics, and supply chain financing, to discuss potential disasters and their impact on the company’s operations.
Lastly, signals of supply chain disruptions should be included in supplier performance metrics. If companies include disruption-related metrics into their evaluations, they will be able to negotiate better terms for their company. Companies who add their suppliers in their supply network mapping activities (included in the contract), allows both parties to be better equipped for a disaster.
When the effects of COVID-19 start to settle, we will see some companies continue down an unprepared road, and we will see some take control of their company and begin to plan. The ones that choose to plan will likely be more successful if an event similar to COVID-19 occurs again.
At TGG, we can help your business plan for potential disruptions. Contact us for more information.
This post was reviewed by our team of accounting and financial experts. TGG’s mission is to make business owners’ lives better through excellent financial management. We strive to provide the most up-to-date and objective information on accounting-related topics so our readers can make informed decisions based on factual content. All posts undergo a review process with at least one member of our Leadership Team to ensure accuracy.
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Matt Garrett is the Founder and Chief Executive Officer of TGG. He is a regular speaker across the country on behalf of Vistage educating business owners on the need for sound financial practices, and is Vice President of the Board of Directors of FINACA. Under Matt’s leadership, TGG has received the following recognition: INC. 5000 top companies in the U.S. five years in a row; one of “San Diego’s Fastest Growing Companies” the past four years; and is among San Diego’s “Best Places to Work.”
