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If you’ve been doing business for a while, you may be feeling a bit jaded about COVID-19. While all the doomsday preppers are stockpiling soap as if they’ve never washed their hands until now, you may be brushing off the hysteria, remembering when everyone panicked over SARS. Then Ebola. Then Zika.
Sure, you may be having some difficulty shipping product out of China right now and you may be seeing a slowdown in business due the stock market tumbling, but you may figure that panic over coronavirus will blow over soon enough.
It’s impossible to predict what will happen, but it’s safe to say that a savvy businessperson will overcome a multitude of scenarios and beat out their competitors by maintaining a diverse supply chain.
“I think the American people are becoming increasingly aware that international trade in goods and in services is not only an issue that impacts [only] large and multinational companies but practically every business,” Andrew Blasi Jr., director at Crowell and Moring International, recently told Thomas CEO Tony Uphoff in an episode of our podcast.
Here are six reasons you should have a diverse supply chain that aren’t related to coronavirus — as well as tips to overcome each of them and a checklist at the very end for overall supply-chain management best practices.
1. Trade Wars
No matter where you do business, you’re going into battle. Everyone wants their cut. Everyone wants to come out as winners.
In 2019 manufacturing businesses braced for steep tariffs, which included a 25% tax on steel. 70% of businesses said tariffs diminished their profit margins, according to one report. By mid-January of this year, President Trump signed a “Phase One” trade deal with China, signaling at least a partial truce in the trade war.
Now, Saudi Arabia has begun a price war against Russia, sending rippling effects across the globe: we haven’t seen oil prices crash this bad since 1991.
How to Prepare Your Business for Trade Wars
2. Weather and Natural Disasters
The tech world is buzzing about 5G, but did you know it’s interfering with satellites that help with weather forecasting? Regardless of whether we have accurate forecasting, there are always anomalies. Even when we can predict weather patterns, we cannot control natural disasters around the world.
Australian Wildfires
It wasn’t that long ago that we were talking about ways technology could fight the Australian wildfires. Australian businesses experienced supply-chain disruption, with deliveries unable to be made. Cooper Energy Ltd.’s Sole Gas Project and Independence Group NL’s Nova mine, for example, dealt with delays and closures. It’s estimated that the GDP will fall 1.90 in Australia this year because of the fires. Consumer confidence is the lowest it’s been in four years.
Monsoons
Right now, monsoon season is looking positive for India. Last year, though, the nation experienced its worst rainfall in 25 years. As expected, it hurt business, with some produce even banned from being exported.
Flooding
In 2011, flooding in Thailand destroyed business for hard-drive suppliers. The country is the second-largest maker of hard disk drives (HDD) in the world, and projections were that the flood would make output fall by 30%.
Tsunamis
2011 wasn’t a good year for Japan either. You may recall that an earthquake triggered a tsunami that resulted in level 7 meltdowns at Fukushima Daiichi Nuclear Power Plant. What you may not remember is that it damaged 2,300 Nissan and Infiniti vehicles, 1,300 of which were supposed to be headed to U.S. showrooms.
Earthquakes
A few years later, in 2016, Japan was hit with another earthquake. This time it cut the quarterly profits at Sony, with its imaging sensor business, by half.
How to Prepare Your Business for Inclement Weather and Natural Disasters
- Best practice is to be aware of seasonal trends, monitor forecasts, understand how weather (such as humidity) may impact the quality of your product, have diverse supply chains, and include a course of action to deal with hard-hitting weather at various warehouses and at sea.
- Prepare by reading Thomas’ “The Impact of Natural Disasters on Economy and Supply Chain — and How to Prepare for the Worst.”
- Sometimes it’s not just about having a diverse supply chain, but readying your factory for weather-related conditions. Get the details you need to know on desiccant and cooling-based dehumidification for your manufacturing operations in Thomas’ “Regional Forecast: Lower Humidity Equals Higher Profits.”
- In “What Will It Take to Adapt to Natural Disasters?” we state: “Formalized education and outreach programs, disaster-proofing structures, and predictive technology are all measures that will help limit the damage caused by natural disasters.” We also mention how AI is helping.
3. Holidays
Holidays can reap huge profits: “Overall, holiday sales represent about 20% of annual retail sales each year, but the figure can be higher for some retailers. Hobby, toy and game stores report the highest share at about 30%,” according to the National Retail Federation, who defines the holidays season as November to December and sometimes January. This past year, in fact, saw record sales online — a 3.4% increase — during the holiday season.
With many employees taking vacations during the holidays and with business ramping up to a point where you need additional, seasonal help, however, you may find yourself in a holiday supply chain talent shortage.
As well, you need to be aware of how holidays and observances kept by individuals in your national supply chain as well as in your international supply chain may adversely affect your business. For example, Lunar New Year traditionally throws a wrench in the manufacturing process.
How to Prepare Your Business for Holidays
4. Growing Awareness of Ethics & Sustainability
The world is waking up to the treatment of workers around the world as well as the impact of manufacturing on the environment.
October, thanks to Halloween, is the number 1 month for imports for candy and chocolate, with 34% of countries seeing peak chocolate imports that month. However, as we recently reported, increased scrutiny of ethical and sustainable practices sent the cost of cocoa soaring to its highest price in November 2019 since May 2018. While some countries are rightfully protecting laborers and the land, some buyers are looking to skirt the issue by using a supply chain with less ethical standards. Even though it can cost more to source from an ethical supplier, not using one can hurt the image of your brand and ultimately diminish your return.
The good news is that buyers are willing to pay more for products that are ethically sourced and sustainably made: 73% of millennials are willing to pay more for sustainable products.
In fact, 81% of consumers strongly believe that companies should work to benefit the environment.
How to Prepare Your Business for Improving Ethics & Sustainability
5. Strikes
Strikes can happen within your company, where you are likely prepared and have a say in negotiations — and they can happen at a supplier your vendor hired, where your line of communication is limited to your vendor representative. They can happen in factories and also in ports. Some are short, while others drag on for weeks at a time. No matter where they happen, they threaten your productivity, schedule, and profits.
Recently, Paris succumbed to a record-breaking, seven-week strike. Restaurant revenue was said to be down by 25%. The rail network shut down. And, tourists fled. It’s believed that 10% of businesses were affected and that 0.1% of the fourth-quarter growth diminished.
Stateside, we saw the General Motors strike, which impacted the supply chain and business. A few years before that, in 2016, Verizon workers were on strike.
How to Prepare Your Business for Strikes
6. Data Breaches, Leaks & Value-Chain Climbing
Diminished profits because of a flood or even a strike hurt your bottom line, but if your business is relatively healthy you can generally bounce back in the next quarter. However, when your own employees are leaking confidential information, there is a significant data breach, or a supplier you trust suddenly becomes your competitor, it threatens not just your supply chain but trade secrets and business model.
Last year, 50% of manufacturers faced data breaches. Thomas reported that one out of 10 manufacturers experienced “major” cybersecurity issues.
The majority of leaks come from a company’s own employees: “Dozens of leaks from just about every major tech company have brought an incredible amount of new information into the public realm. The companies continue to hunt the leakers, but they keep delivering information to journalists,” The Atlantic reports in an article that gives a timeline of major tech leaks, including transcripts that contradict Google’s congressional testimony.
However, occasionally suppliers turn into competitors when they decide they can do what you do. This is called value-chain climbing: “As IBM and other companies have learned, however, contract manufacturing is a two-edged sword. For one thing, a CM is privy to an OEM’s intellectual property (IP), which it can leak to other clients or arrogate. For another, an ambitious, upstart CM can claim for itself the very advantages it provides an OEM,” said The Harvard Business Review.
How to Improve Your Supply Chain Management
- If you already have a diversified supply chain, you may want to turn to blockchain. “Blockchain allows businesses to record data in a tamper-proof, shareable medium,” according to Thomas’ “4 Ways to Better Manage Supply Chain Risk in 2020.”
- Thomas’ “Improving Supply Chain Management” suggests streamlining your business, being people-focused, and keeping communications clear. While you do want to diversify your supply chain, you want to do so in a manageable way and to establish trusted relationships.
- It’s important to educate your own employees so they understand what constitutes confidential information and how to prevent it from getting leaked, according to Inc.’s “4 Common Ways Your Employees Leak Trade Secrets (and How to Stop Them).”
- Protect your company from outside breaches — and speak with representatives throughout your supply chain to ensure that they know how to protect their, and your, data as well. Thomas’ “Considering GDPR in Supply Chain Management Processes” explains the fines associated with supply chain partners not establishing compliance with the European Union’s General Data Protection Regulation (GDPR) requirements.
- Research indicates that if your supplier suddenly wants to become your competitor, rather than firing them or paying them more, a better approach is to create an apprentice relationship with them, according to “When a Supplier Becomes a Competitor.”
Checklist for Diversifying & Monitoring Your Supply Chain
- Like the Boy Scouts, always be prepared for the different scenarios that could impact a link or multiple links in your supply chain by having alternative suppliers, warehouses in disparate locations, contingency plans for transporting product, and training measures in place.
- Consider using ERP so you have enhanced visibility into the entire supply chain.
- Stay current on politics, holidays and observances, and breaking news so that you can work with your supply chain representatives to get out in front of issues, whether they be related to natural disasters, political upheaval, or strikes, or move your business elsewhere.
- Hire a diverse internal staff. Employees with different employment backgrounds, age ranges, genders, and races, for example, each bring their own experiences, perspectives, and tactics to the table and can help you think outside-the-box when it comes to diversifying your supply chain.
- Practice clear and effective communication, which includes practical training on confidentiality, with your internal team as well as with your vendors. Don’t stop there, though. Ensure that your vendors are relaying important compliance measures to their suppliers. Personally getting to know people across the supply chain and encouraging them helps to build trust for you and them.
- Build your brand with authenticity and transparency. As important as it is to ensure ethics standards are upheld across your supply chain, it’s also helpful to communicate your business’s standards to clients and customers and to address any concerns they may have.
Image Credit: Image courtesy of Vladimir Mulder / Shutterstock
