“Those companies who identify specific supply risks and actively manage it, will find solutions or at least mitigate the impact,” says Hackett Group. “Those that don’t are at the mercy of the virus and the public response.”
As companies try to understand the supply chain disruption due to the Coronavirus, the Hackett Group offers some insight.
If your company, or its key suppliers, carries limited raw material inventory and relies heavily on Asian sources of supply, you are at high risk of disruption says a new analysis by the Hackett Group.
As to which industries are most vulnerable the group looked at risk factors including the comparison of raw material inventory and size to predict overall risk.
Those industries that landed in the highest risk category include tools and hardware, electronics & appliances, auto parts OEM, building products, diversified chemical, and industrial specialties.
While other industries will be affected, the telecom, automobile, computer peripherals, and industrial conglomerates have less inventory in their supply chain, the firms in these industries typically have the scale and resources to reduce supply chain risks.
Looking at past severe supply chain disruptions to find lessons learned, Hackett examined the group Fukushima nuclear disaster in 2011, During Fukashima, some companies discovered that they had a single point of failure in their supply chain. One example was Apple, which was using lithium-ion batteries that required polymers from a plant near Fukushima. Another example was the automobile companies, who could not get the oxygen sensors they needed for truck engines.
Since then many companies now focus more heavily on assessing and addressing potential supply chain risks.
But other companies have not looked beyond their first-tier suppliers.
“This is critical because there can be hidden problems in the other tier suppliers that companies would not otherwise be aware of. Fortunately, tools for supply chain visibility have improved dramatically in the past few years, which makes it easier to address this issue,” explained Josh Nelson, Supply Chain Principal, The Hackett Group’s Strategy and Business Transformation Practice in the analysis.
Capacity is another area of concern. Even if there are multiple suppliers, they might not be able to fill the need. The analysis cites the example of travel bans and shutdowns, which would require companies to expedite shipments. And in other cases, these closures can lead to supply shortages.
“The best thing that companies can do is to simply know their supply chain risks, and preemptively develop mitigation approaches,” said Nelson.
“Those companies who identify specific supply risks and actively manage it, will find solutions or at least mitigate the impact,” says Nelson. “Those that don’t are at the mercy of the virus and the public response.”