While the ultimate human and economic cost of the coronavirus pandemic is still unknown, business owners have already seen significant supply chain impacts. Many of these issues are new to even business veterans. However, supply chain experts say there are steps businesses can explore now to manage disruption.

Supply chain impacts

Capacity constraints, such as the reduced availability of supply, and price hikes for international shipping are the most significant and immediate supply chain effects of the pandemic for businesses importing from overseas. 

In mid-March, as governments around the world started to impose restrictions on passenger air travel, quotes for transporting goods fluctuated wildly in just a matter of days. Although cargo flights have not been banned, the vast majority of air cargo into the UK travels in passenger aircraft cargo holds. Heathrow Airport, for example, says passenger planes carry 95 per cent of all cargo that arrives there.

“With passenger flights on hold, not only are prices higher, but it is difficult to even get air freight booked,” says Sam Polakoff, CEO of supply chain consulting firm Nexterus. In some cases, quotes are as much as 10 times higher than usual, he adds. 

Although supply chains continue to be disrupted, there are some steps UK businesses can take to ensure sourcing capabilities in the short and longer-term.

Keep the lines of communication open

The best move a business owner can make right now is to communicate with supply chain partners, says David Dreyfus, an assistant professor of supply chain management at Rutgers Business School.

“I recommend calling key suppliers right away and getting an idea of whether your supply is actually going to be arriving as expected,” says Dreyfus. If customer demands have changed quickly in light of the coronavirus outbreak, he advises contacting key suppliers to let them know what is happening and to keep them updated about this. 

Pre-empt future overstocks

A central concern for all businesses in the supply chain should be avoiding the bullwhip effect. This is a supply chain term for what happens when extreme demand at point-of-sale for certain goods results in retailers over-ordering. This causes distributors to also over-order and manufacturers to over-produce. The result can be massive over-stocks of product that arrive after buyer demand has been thoroughly satisfied.

“They get the extra product down to the store level and there’s nobody there to buy it,” Dreyfus says.

Toilet paper, for example, is experiencing the bullwhip effect. Consumer buying behaviour has changed quickly because of the UK lockdown and the high consumer demand seen in the market could lead to excessive over-stocking. The effects on retailers, distributors, manufacturers and other supply chain partners will be negative as supply chains respond to a demand that is no longer there. 

“The way to cope is to tell supply chain partners what’s going on,” Dreyfus says. “Tell them you’re seeing unusual activity and work with partners on how to properly react to new customer demands, so the bullwhip effect doesn’t affect them as much.”

Be financially flexible

At the same time, UK businesses will want to avoid cashflow problems and supply issues that may occur further down the line. 

The supply chain is traditionally thought of as a function of consumer demand, but amid potential cashflow disruption and short-term changes in consumer buying behaviours, businesses would be wise to think about it through the lens of finance— and to think about their finances differently. 

As the crisis continues, higher transportation costs will create additional financial strains. Businesses can prepare by assessing their available lines of credit with financial institutions as well as agreements with logistics providers. It may be necessary to draw down lines of credit or extend payment terms with logistics providers as tactics to free up cash flow. 

Shore up stock

One way to prepare for potentially higher costs and longer delivery times is to build up stock. Firms with the financial capability and the opportunity may choose to add inventory now if possible, suggests Polakoff.

"If your cashflow supports it, stock up," Polakoff advises. “Getting product into inventory now will allow businesses to satisfy demand as it peaks while minimising or delaying the impact of increasing costs and lower product availability in the longer term.” 

For UK businesses in particular, pre-Brexit stockpiling towards the end of 2019 means many have some room to breathe, with stock already in place to meet current demand. 

Diversify your sourcing

As the pandemic develops, other supply chain problems are likely to crop up. Even though Chinese manufacturing is starting to pick up again, businesses that relied heavily on sourcing from China for complex product may find their specialist manufacturers are no longer operating. 

Now would be a good time to undertake careful and systematic analysis of your supply chain and figure out where you can diversify, advises Polakoff. 

John Pearce, CEO of Made in Britain, a trade association for British manufacturers, says: "We know from our members that businesses are finding it difficult to source finished products or parts from overseas suppliers.” 

The association points businesses towards its searchable madeinbritain.org directory that can help find British-based suppliers. “It's often the starting point for procurement professionals looking for components and materials produced closer to home and we are seeing an increase in searches and email enquiries,” adds Pearce. 

With many businesses in the UK forced into hibernation during the coronavirus outbreak, some businesses are finding their usual supply chain partners out of action. Seeking out ways to collaborate can yield surprising results. 

Future disruption responses

Deeper analysis of supply chain dynamics and building in more flexibility and diversity among suppliers and supply chain partners are all likely to be widespread responses to the current global health crisis. 

In addition to those long-term solutions, in the short run business owners can best respond by immediately having in-depth conversations with their supply chain partners, assessing their stock and keeping on top of fast-changing consumer demand. 

It's likely that most businesses will come out of this crisis with more understanding of their supply chains and greater resourcefulness than before. 

“Supply chain strategy will now change forever because of this pandemic,” Polakoff says. “People will think differently now.”