CORONAVIRUS and Supply Chain Risk

CORONAVIRUS and Supply Chain Risk

The World Health Organization has declared a global state of emergency due to the outbreak of the Coronavirus (COVID-19). The ramifications of the travel bans relating to the outbreak and slowed manufacturing due to shortages of labor and raw materials means vendors in your supply chain may be affected.

To learn more on what to expect and recommendations on managing risk in the supply chain, keep reading.

According to Supply Chain Management Review, there are five areas expected to be impacted by COVID-19:

  • Materials

  • Labor

  • Sourcing

  • Logistics

  • Consumers

Travel restrictions and quarantined areas will continue, causing material and labor shortages, and limit movement in and out of established hubs and supply networks.

Over 400 companies have warned the impact of the coronavirus on Quarter 1 (Q1) earnings. News outlets Forbes and The Wall Street Journal are predicting these impacts will continue to affect earnings in Q2.

Many suppliers do not have a relationship built with second or third tier suppliers. Do you know which of your contracts are at risk for disruption? Do you have strong relationships with your suppliers?

Deloitte’s published perspective on risk management in the supply chain breaks down 5 steps[1] for proactive risk management. We have tweaked some of Deloitte’s steps to better fit the world of the public procurement professional:

  • Get to know your potential suppliers

Your sourcing team should use effective due-diligence processes by getting answers for critical questions about third-party business practices. Are there existing business relationships that would create a conflict of interest? Does the company have a strong track record for meeting obligations? ASK—and you shall receive.

  • Make sure you get what you’ve asked for

Quality control and monitoring of goods and services is essential to upholding a contractual agreement. Despite a supplier’s own thoroughness, it is your responsibility to make sure all goods and services provided are meeting the high standards of your contract. Does your contract include milestones?

  • Only pay for what you’ve actually received

Complex networks of supply chains increase risk of duplicate billing, inappropriate markups and improper billing. Healthy skepticism among accounts-payable staff can go a long way toward protecting your agency. Empower your employees to be good stewards of taxpayer dollars.

  • Prevent or resolve disputes effectively

Like death and taxes, supply chain disputes are inevitable at each stage. Continuously review processes for handling disputes or protests to check for needed technologies and resources. Sure, your software/process works, but is it the right software for your needs?

  • Avoid risks in the solicitation process, too

Solicitations by nature are the beginning of the supplier-state relationship. Just as contract administration focuses on the supply chain— solicitation writers should also be aware of supply chain risk. Does your agency offer a 1-pager on proper solicitation? Have you created a checklist for solicitations to look for discrepancies or gap in terms and conditions? What about product descriptions? Your staff devoted to solicitation engagement should be well versed on state procurement statutes and acquainted with market research tools as a way to watch for trends.

Supply chains are going to be hit hard by COVID-19, and no expert is going to be able to definitively say what all areas will be affected.  Do the work up front. Get to know your suppliers. If a supplier is identified that you think may be affected, reach out to the supplier and discuss their second and third tier suppliers. Look for creative solutions and manage the risk.

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[1] Kivett, L. (2018, February 16). Risk Management in the Supply Chain: Deloitte US. Retrieved from https://www2.deloitte.com/us/en/pages/risk/articles/risk-management-in-supply-chain.html

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