Managing Supply Chains in a Pandemic

U.S. retailers have faced numerous challenges during the COVID-19 pandemic: shelter-in-place orders that closed all but essential retail, outbreaks of COVID-19 among employees for those remaining open and, naturally, supply chain shortages as vendors were hit by the same issues. For consumers this has meant some empty shelves — generally on sought-after items such as toilet paper or hand sanitizer. For some retailers that didn't foresee or proactively plan for a pandemic, the damage has been enormous.

The perfectly prepared retailer would have had a plan in place that would have included stockpiling personal protective equipment (PPE) for employees, varying supply chains geographically, keeping raw materials in stock, and revising sick policies to incentivize people to stay at home when exposed. A good pandemic plan would have helped them consolidate the number of items they would sell in a crisis and vary their supply. Proper pandemic planning isn't easy without experienced providers or guidance. Today, the value of proper planning is abundantly clear.

The two biggest problems facing supply chains now are employee illness and shortages of raw supplies. While these are certainly challenging, things could get worse as most scientists say we should expect a second, perhaps steeper, wave that could hit now that social distancing rules are being relaxed across many states.

Vulnerable Assets

Major COVID-19 outbreaks at distribution centers and meat production plants have heightened the challenge of keeping production going when employees get sick. While many companies can ask employees to work from home, most production and retail employees must be physically present. That puts them in contact with hundreds or thousands who could transmit COVID-19.

To secure supply chains, protect employees, and allow them to return to work, companies must be able to conduct immediate and consistent workforce testing, ensure every employee has PPE, and strictly enforce social distancing mandates. Employers will need to incentivize employees to not work when sick, and ensure proper accommodations are made for high-risk employees and those who have had possible exposure to the virus.

Rethinking Supply Lines and Raw Materials

Retailers typically run tight supply chains to keep margins tight. However, just-in-time supply chains only work efficiently and contain costs during business-as-usual conditions. This also makes it more difficult for companies that treated vendors like commodities to feel incentivized to prioritize them when they have alternate buyers competing for their goods.

Retailers can proactively map out supply chain weaknesses, attempt to identify alternative supplies, and work with existing vendors to understand how solid their supply lines are likely to remain. Sometimes the shortage is due to geography, as some regions are more heavily impacted than others, and sometimes it’s a result of having to substitute alternative ingredients for harder-to-find ones. Therefore, flexibility will be key.

Moving Forward

The COVID-19 pandemic will fundamentally alter business operations. Rather than planning on returning to normal, retailers must define a “new normal” that keeps us prepared for future pandemics, such as opting to proactively increase their supply of products and employee PPE so they're not caught unprepared again. The overarching lesson of this pandemic has been that running tight supply chains with little excess might be the least expensive way to operate, but it doesn't mitigate risk. Good supply chain planning to weather future pandemics will require a thorough inventory of all risks to employees, customers and operations. This is the time to be vigilant and implement strategic business resilience planning to ensure the issues don’t multiply.

Kim Hirsch is the manager of advisory services at Fusion Risk Management, overseeing the team that provides subject matter expertise to help customers plan, implement and exercise enterprise business continuity, disaster recovery, crisis management and operational risk programs and associated components.