The current COVID-19 pandemic has had a significant impact on almost all organisations and industries, and across all countries. Those organisations who have global supply chains have previously experienced global disruption, with SARS in 2003, or the Fukushima nuclear disaster in 2011, and will have supply chain contingency and risk plans in place. However, a disruption to global supply chains of this scale has never been seen before.
If we look at the Life Sciences industry specifically, our research suggests that most UK Life Sciences companies feel that they are relatively well positioned to cope with a short-term disruption. However, if current restrictions continue, and we see further impacts on China, supply chain shortages will eventually start to create wide ranging disruption across the industry, some companies may not recover.
With supply chain networks becoming ever more complex, contingency planning is not simple, and consequently the issues of risk and vulnerability should be at the top of every business agenda.
The growing impact of COVID-19 has exposed the fragility of global Life Sciences supply chains, seen very clearly with the low availability of PPE (personal protective equipment) for front line NHS staff, and the disappearance of paracetamol from supermarket shelves. Less visible are the potential impacts on generic drug producers who source Active Pharmaceutical Ingredients from China and manufacturers of branded pharmaceuticals. They are likely to see a shift in their demand, both as antiviral use rises, and as other chronic conditions are left untreated by patients due to concerns over exposure to COVID-19. As the virus continues to spread, we may see increasing shortages of materials coming from, or routed through, severely impacted areas, as well as capacity issues along various transport networks. Even as these areas come out of lockdown and production returns to ‘normal’ their focus will initially be on domestic consumption before servicing world supply.
Across all sectors of business, companies have been extending their geographical reach and influence. Enabled by free trade and advances in technology, there are major opportunities for developing global supply chains to meet the changing requirements of a global customer base. However, whilst the development of global supply chains has grown exponentially over the past decades the inherent supply chain risks have been largely ignored.
As well as the supplier, there are multiple additional parties involved in executing a global sourcing transaction, these include: logistics service providers; technology (software and infrastructure) providers; finance companies; customs and compliance authorities; and shipping lines. In addition, every supply chain is a complex ecosystem of multiple tier customers and suppliers, with every tier also connected to other supply chain ecosystems. Furthermore, the physical logistics infrastructures, be it road, rail, air or ship, that connect the nodes in these chains are an integral part of the ecosystem.
In normal circumstances, each node and connection in the supply chain ecosystem is subject to a statistically low incidence of unexpected and undesired shocks. However, when a “black swan” shock on the scale of the coronavirus occurs, it has the potential to upset the workings of a myriad of ecosystems.
Whilst such shocks are rare, they highlight a key role of supply chain management to identify, manage and mitigate structural risk within extended supply chains. This role is often overlooked. Very few organisations have visibility of their supply chain ecosystem, let alone the tools to identify, assess and manage risk.
Risk can be induced by events in either demand or supply, within the business itself and in the environment at large where external events (be they global, like coronavirus, or local, like adverse weather conditions) can upset the flow of the supply chain. This means that:
Identifying and assessing all the areas of risk that a business may face is a difficult task. However, the reality of this challenge does not make it a pointless endeavour. A risk that is visible may (not necessarily can) be managed, minimised and perhaps even eliminated. An unseen risk is far more dangerous, and can often only be tackled once it has occurred to its full effect. External risks are, by definition, potentially greater than internal ones – you know less about them.
From this simple consideration, it quickly becomes apparent that there is an urgent need to be able to describe, analyse, prioritise and act (where practical and cost effective) on the many dimensions of supply chain risk that businesses may be facing.
If COVID-19 has had an unexpectedly severe impact on your business, then we recommend the following steps:
Risks are an inherent part of business life, however, it is the approach to risk that can make the operational difference – “forewarned is forearmed”.