As the coronavirus continues to disrupt global supply chains, Gartner Inc. has developed three scenarios to help chief supply chain officers (CSCOs) anticipate how the future may unfold.
On March 16-18, Gartner conducted a poll of 833 members from the Gartner Research Circle Members (a Gartner-managed panel composed of IT and IT/business professionals) and found that 84% of organizations are facing varying forms of disruption – from slight disruptions to operations being reduced, restricted or closed.
“As inventory buffers start to deplete and demands shift, there is even more disruption coming our way,” said Sarah Watt, senior director analyst with the Gartner Supply Chain Practice. “While this crisis requires a fair amount of crucial day-to-day decision-making, CSCOs must start planning for a recovery and make preemptive decisions to set their organization up for success.”
Scenario planning enables supply chain leaders to anticipate how the coronavirus disruption will unfold and identify both risk and opportunities. It provides CSCOs with the data to demand investments in supply chain resiliency and agility.
Gartner has identified three prevaccine scenarios (see Figure 1) that CSCOs can utilize in their decision-making process. The scenarios will vary based both on geography and product.
Scenario 1: Short-Term Disruption
In this scenario, there is significant impact from COVID-19 in the short term, but the virus will be dealt with quickly. Eventually, restrictions are lifted, and customer confidence increases.
“This is a best-case scenario. However, supply chain leaders shouldn’t expect an imminent return to business as usual. Supply chain organizations will not be the same after COVID-19, they will enter a ‘new normal’,” Ms. Watt said. “During a quick recovery, understanding changes in demand, establishing supply and managing economic impacts will be crucial to the speed of recovery. Demand sensing is particularly important, as consumer sentiment is changing.”
A quick move into the recovery phase also creates short-term competition for logistics services. Space on planes, trucks and ocean carriers will be in high demand and result in increased costs. CSCOs must work with their logistics leaders to plan ahead and prioritize shipments based on customer demand, shelf life and anticipated competitor position.
Scenario 2: Long-Term Disruption
This scenario describes a world in which the virus takes longer to contain, and restrictions remain in place for many months. Customer confidence declines, with a recession following.
“This is the time to radically review product portfolios and evaluate if they match with the current customer spending habits,” Ms. Watt continued. “Stop low-volume and low-margin products and focus on what makes up the bulk of the organization’s revenue.”
In the long term, customer behavior and spending habits may change, as financial insecurity will increase emphasis on personal financial resilience – which may decrease spending on luxury goods. Consumers are likely to stick with e-commerce channels driven by concerns about physically shopping in store. “Financial insecurity is also something suppliers will face, and some might not survive the crisis. CSCOs must anticipate these situations, profiling where suppliers may be in financial distress and taking appropriate action,” Ms. Watt added.
Scenario 3: Secondary Crisis
After organizations experience either the first or second scenario, it’s also a possibility that a second disruption will follow – caused by COVID-19, natural disasters or other major incidents. Therefore, it is important that CSCOs learn from the current crisis and improve their supply chain’s resilience to all forms of disruption.
“While it’s difficult to predict what a secondary crisis will look like, there are certain learnings from the current disruption that will prove helpful. For example, supply chain organizations must consider the impact of the changing political landscape on their ability to move products between countries, as some are restricting the export of critical products. Medium-term forms of protectionism may mean that supply chains need to reconsider their network design and pivot toward more regionalized production,” Ms. Watt concluded.
Gartner clients can learn more in the report “Get Ahead of COVID-19: Apply 3 Supply Chain Scenarios for Proactive Decision Making.”