Supply-side disruption

  • Seventy-three percent of companies experienced a detrimental supply-side disruption as a result of the coronavirus pandemic, according to a new report from Resilience360 and Business Continuity Institute that surveyed 350 global manufacturers and retailers in June through the first week of July.
  • Nearly 30% of respondents said their company would source less from the Far East. And two-thirds of respondents said they would work to move one or more suppliers to be situated more locally.
  • The survey found that nearly 20% of respondents expect to hold more inventory as a result of the pandemic, while another 27% don’t plan to change inventory levels but do plan to shuffle their supplier base “to ensure goods can be acquired easily.”

The degree to which companies understood their existing supply chains and their desire to expand this knowledge going forward was mixed among the respondents in the survey. It found that 36% of companies know the geographic location of all tier two suppliers, while 47% said they just knew the geographic location of their critical tier two suppliers.

“The pandemic caused disruptions to many organizations’ supply chains beyond tier 1: many European based manufacturers, for example, are heavily reliant on Asia for components which caused issues for many organizations’ tier 1 suppliers,” the report reads. “As a result, nearly two-thirds of organizations plan to perform deeper due diligence going forward.”

Nearly 77% of respondents reported conducting due-diligence measures with tier three suppliers, but this dropped to 12% of respondents for tier four and 11% for tier five and above. Forty percent of respondents plan to perform greater due diligence moving forward due to the pandemic. Due diligence is generally considered to be understanding the financial condition, insurance information and other aspects of a supplier including their cyber and operational risks.

At this point, it is no surprise that the pandemic has led many companies to take a hard look at their procurement process and sourcing streams. The term “reshoring” peaked in search traffic in early April and has remained at an elevated level over the last few months.

“Companies often reduce complexity in their supply chain after experiencing devastating major supply chain disruptions,” Sangho Chae, an assistant professor of Supply Chain Management at Tilburg University in The Netherlands, told Supply Chain Dive earlier this year.

But moving supply chains out of China won’t necessarily be easy. The country has built up a significant infrastructure of suppliers in multiple industries. Textiles, for example, would require millions of dollars in investment to recreate a similar environment in the U.S.

“With other countries already launching initiatives to encourage organizations to reshore manufacturing facilities, the future for China is uncertain: although domestic demand helped to provide a positive picture for manufacturing in June, weak international demand is weighing on the country’s manufacturers,” the report reads.

(supplychaindive)

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