Global supply chains have not experienced this much disruption since WWII when the United States wasn’t as dependent on oversea goods and manufacturing. Many businesses are making swift business decisions and joining an illustrious group of retailers closing for several weeks to try and flatten the curve of the coronavirus.
It's fair to say that hour by hour, day by day, coronavirus cases in the USA and globally are increasing at a rapid pace. At this point, the USA has not peaked in terms of rates of infection. Until coronavirus test kits are readily available in all areas of the country, it is impossible to estimate the total number of cases.
Currently, many patients with symptoms are not tested and are identifies as "presumptive." To understand how this virus grows exponentially, read Forbes' article illustrating World Health Organization statistics by country. As state and city health policies adopt a "stay-in-place" policy, American businesses are forced to evaluate what to do.
Considering the complexities of global supply chains, we want to concentrate for a minute on inventory availability. Without having “the right” inventory, you have no sales. Your strategy for this crisis needs to be different than normal merchandise planning.
How will the disruption to your supply chain affect sales and your business’ ability to stay open?
Formulate your business strategy, quickly. The first step is to re-project your order demand for the crisis period. From this, you can project inventory needs and labor hours required for fulfillment.
The length of time that health authorities are saying this could be at its highest threat is anywhere from one month to four months. One projection is 18 months with a cycle of reinfection. China has been experiencing this since November 2019.
It may be best to use a 6 to 8 weeks period. There are other important aspects in addition to inventory, such as local and state health authorities’ directives about “social distancing”, “self-quarantine” and employees availability.
Will you have inventory available to fill orders?
Pareto’s Law, or 80/20 rule (i.e. 20% of the products give you 80% of the sales), applies to many retail and ecommerce merchandise assortments. If Pareto’s Law doesn’t hold for your business, what key items are you going to stay in stock on that maximizes sales?
Chasing all items through the supply chain may not be doable. Take care of these key items and you may be able to weather this pandemic from a sales perspective. Answering these questions will help you priorities inventory:
- Are the factories you work with affected by the virus? Are they at full capacity; on reduced hours for production; or closed?
- Are countries you import from in lock down?
- When you look at key items’ in-transit and in stock, how long will item inventories last? Are their alternative suppliers? Can you place larger purchase orders for key items to maximize sales?
- Do you have internal expediters keeping close watch on these key items? Can you be more proactive in advance of a shipment to be sure it’s to ship on time?
- Prepare to pay higher freight costs. How will gross margin be affected?
- What does this strategy do to your cash flow needs? Can you increase lines of credit?
What will be the impacts on freight forwarders and carriers?
The global transportation systems has been strained with the pandemic and will face further capacity constraints in the coming weeks. Priority will obviously be given to those shipments that focus on medical supplies and other life saving needs.
Companies need to be patient and keep in constant contact with overseas shippers, trucking companies, and small parcel carriers. These companies will continue to be impacted as the virus continues to spread. The carriers will be fielding a significant number of calls and questions on shipping delays - be sure to clearly communicate with your customers on how shipments may be affected.
As more and more commercial flights are grounded or cancelled, carriers like FedEx have the ability to handle this freight. UPS is working with the US government to assist with logistics planning and operations to support Coronavirus testing sites. Both FedEx and UPS will continue to focus on response efforts to assist the country as needed - for retailers and consumers alike.
It’s extremely hard to accept this happening to our businesses, nation and economy. We hope and pray that your business weathers this and comes back quickly. May your family and your employees stay healthy!