COVID-19: Lessons from supply chain disruption

Date: 2020-03-25

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images Supply chain disruption caused by the spread of COVID-19 has highlighted the reactive nature of business continuity plans. How can enterprises ensure they are better prepared for future challenges?

1 Enterprises should seize the opportunity to revisit their business continuity plans in the wake of COVID-19 supply chain disruption.

2 It is vital to know where supply chain disruption is most likely to occur, how governments will react, and whether alternative suppliers are available at a moment’s notice.

3 Due diligence can help map the jurisdictions of vendors, apply a country risk rating, and identify the potential risk of each vendor commensurate with their criticality to enterprise operations, fostering a continued understanding of exposure and the means to mitigate it.

The response of enterprises to the spread of coronavirus (COVID-19) has focused on securing their personnel and reviewing supply chains in an attempt to achieve some kind of business continuity.

The ever-growing interconnectivity of markets has resulted in complex supply chains spanning jurisdictions and industries, which are currently being savaged by the residual effects of the virus. And as the markets are demonstrating, the economic effects are just beginning.

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FTSE 100 Index and Dow Jones Industrial Average March 2019 – March 2020

Considering SARS was over a decade ago, business continuity plans have been most recently challenged by geopolitical tensions in the form of tariffs and natural disasters. The sudden escalation of COVID-19 has demonstrated the cross-border vulnerability of supply chains, and reactive nature of business continuity plans

COVID-19 supply chain disruption

Even the most valuable, seemingly forward-thinking, companies in their industries — ranging from technology to automotive to toys — have reported impeded or entirely shut down production due to supply chain links within COVID-19-affected areas.

The pandemic is an unfolding story, with companies of varying industries providing mixed messaging in terms of continued production, while most consumers have no idea what the implications may or may not be in the coming days, weeks, and months.

Clearly, supply chain disruption ranges on the scale of predictability.

However, each and every disruption is an opportunity to revise an enterprise’s business continuity plans and supply chain vetting process in order to ensure the reasonable continuity of operations.

By taking into account high-level considerations such as the jurisdiction and criticality of supply chain links, along with the commensurate scope of due diligence to further understand risk, enterprises can start building the foundation for a dynamic supply chain in order to counteract possible disruption.

Jurisdictional supply chain risk exposure

The COVID-19 pandemic, as well as the geopolitical and natural disaster disruption, have demonstrated the debilitating potential based on supply chain concentration risk by jurisdiction.

In building a new and/or revisiting an existing supply chain due diligence vetting program, enterprises should begin with mapping the jurisdictions of their vendors and applying a country risk rating, internally or externally, to each entity in the chain.