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Supply Chains Struggle to Survive as Virus Creates ‘Rough Sea for All Boats’

As the coronavirus works its way across the globe, brands and retailers are feeling the supply chain squeeze.

According to a new study from research and advisory firm Gartner’s supply chain practice, which offers data analysis and peer-based best practices to the sector’s leaders, three areas are being most heavily impacted by the pandemic.

Global workforces, products and costs should be the top priorities for companies’ initial crisis management, Gartner said Wednesday.

“As COVID-19 spreads globally, we are seeing increased supply chain disruption, but also changes in consumer spending habits,” said Sarah Watt, senior director analyst.

Supply has been hampered because of a limited access to employees due to quarantines, factory closures and manufacturing slowdowns, as well as logistics hiccups that have prevented the movement of goods, Watt said.

“Most supply chain organizations are in crisis management, assessing impacts and response on a daily, if not hourly basis,” she said.

As companies contend with the issue of an anemic workforce, goods are not being produced and exported to their dependent markets, or the other factories that depend on them. This throws a wrench into the supply chain that’s hard to circumvent.

While the virus’ spread is all but inevitable, supply chain leaders need to think about how to protect the health of workers—as well as supporting those who have become ill.

Providing clear and consistent communication around guidelines and protocols will be essential during this time, and she warned against crisis management teams becoming too fatigued to make thoughtful, rational decisions.

Watt also cautioned that consumers might develop more conservative spending habits as the focus on essential goods becomes more heightened.

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Supply chain leaders should analyze and forecast the virus’ impact on customer demand, prioritizing products that will generate high revenue, good margins, and consistent sell through.

“Supply chains may also experience sharp increases in demand for products or unexpected consequences from the event, such as panic buying for essential items,” Watt added.

Organizations should also remain thoroughly cognizant of increases in costs as the virus creates fluctuations and scarcity in the supply chain.

“Even contractually agreed prices and quantities of materials might no longer be valid,” Watt said, adding that increased shipping costs could also pose problems.

Suppliers could invoke force majeure clauses, or seek to pass on additional costs up through the supply chain, she said.

While this catastrophic event is forcing companies into unprecedented situations that need to be dealt with on the fly, Watt recommended that they engage their legal departments in reviewing all supplier contracts.

“When the time for renewal comes, make sure that the organization is financially protected against similar situations that might occur in the future,” she recommended.

“Supply chains will not be the same after this event,” she said, adding that organizations will likely gain new perspective when it comes to managing risk with their partners.

On Tuesday, global insights and technology firm ABI Research revealed that the virus will have both short and long-term ramifications for manufacturers.

“Initially, plant managers and factory owners will be looking to secure supplies and be getting an appreciation of constraints further up the supply chain,” said Michael Larner, the firm’s principal analyst.

As time goes on, manufacturers will need to conduct extensive due diligence to understand their risk exposure, the firm said—and that includes the operations of their supplier’s suppliers.

To mitigate risks, manufacturers should source components from different suppliers in different locations, Larner advised.

He also predicted that the coronavirus’ spread will have impacts on tech investments, as manufacturers lean into enterprise resource planning (ERP) software that helps with inventory control and supply chain management. Spend on this kind of software is projected to reach $14 billion by 2024, according to ABI Research.

Supply chain orchestration software should provide more than just records, Larner said. It should also serve up valuable risk analysis and run simulations that allow manufacturers to “prepare for supply chain shocks.”

In a white paper released this week, ABI highlighted significant long-term effects that COVID-19 could have on technology companies and those looking to invest in their products to enhance operations.

“To effect change, there must be a stimulation of a magnitude that means companies cannot do anything but make bold decisions to survive,” opined Stuart Carlaw, the firm’s chief research officer. “COVID-19 is that magnitude,” he added.

Carlaw believes that the outbreak and the global reaction to it could force companies to radically rethink operations, and double down on their technological investments to guard against future disruptions.

Outcomes could include a more widespread move to lights out, or fully-automated, manufacturing; the increased employment of autonomous materials handling and vehicles to transport goods; a more integrated, diverse and coordinated supply chain, the formation of smart cities to support community resilience; and a move to virtual workspaces and practices, among other changes.

For now, though, the industry’s overall shift toward “global software-centric networks and operations” is being slowed by the economic ramifications of the coronavirus, and organizations focusing their attentions on the problems at hand.

Growth is stagnating at the macro level, ABI analysts said, and that’s bound to have an effect on demand for the innovation and diffusion of 5G rollouts. Those core commercial deployments in Communications Service Providers’ (CSPs) networks were eagerly anticipated for this year, but all that might take a back seat as organizations across categories and industries scramble to bolster flagging sales.

“Contractions in consumer spending, disruptions to supply chains, and reduced availability of components will create a rough sea for all boats,” Carlaw said. “In the short-term, there will be a retrenchment in outlooks [and] a reduced investment in modernization, as survival instincts trump the drive to prosperity.”