As governments and health care agencies work to stop the spread of Covid-19 and to treat those who are infected, manufacturers in more than a dozen industries are struggling to manage the epidemic’s growing impact on their supply chains. Unfortunately, many are facing a supply crisis that stems from weaknesses in their sourcing strategies that could have been corrected years ago.

Learning Painful Lessons … Again 

After the March 2011 earthquake and tsunami in Fukushima, Japan, many multinationals learned painful lessons about the hidden weaknesses in their supply chains — weaknesses that resulted in loss of revenue, and in some cases, market cap. While most companies could quickly assess the impacts that Fukushima had on their direct suppliers, they were blindsided by the impacts on second- and third-tier suppliers in the affected region.

Almost nine years later, it seems the lessons of Fukushima must be learned anew as many companies worldwide scramble to identify which of their “invisible”  lower-tier suppliers — those with whom they don’t directly deal — are based in the affected regions of China.

Many companies are probably also regretting their reliance on a single company for items they directly purchase. Supply-chain managers know the risks of single sourcing, but they do it anyway in order to secure their supply or meet a cost target. Often, they have limited options to choose from, and increasingly those options are only in China.

Risk management principles should be applied, at a minimum, to tiers 1 and 2 in company supply chains. Beyond tier 2, the risks should at least be understood.

At a bare minimum, companies should invest in 24 x 7 monitoring of their global suppliers. New technologies, such as artificial intelligence and natural-language processing, have made extensive supplier monitoring affordable and readily accessible. Just like we wouldn’t drive our car without insurance, we cannot run a globally dispersed supply chain in today’s fast-changing world without being in the know about everyday news that could cause disruptions in the coming days.

Of course, there are costs associated with being proactive in this fashion. For example, multiple sourcing requires qualifying suppliers and sites in different countries. But such costs can usually be offset by reducing the share of business allocated to the higher-cost supplier and country. The advantages to being able to rapidly shift production among suppliers, factories, and countries will typically provide ample return on investment to justify these costs. The cost of mapping and monitoring has dropped in the last decade. Today, this investment is easily offset by savings in the form of reduced reliance on inventory, manual processes, and people — and a fast, responsive, and agile supply chain that remains operational, despite all the things that go wrong every few weeks.

In the first few weeks of January 2020, companies that had mapped their supply chain already knew which parts and raw materials were originating in the Wuhan and Hubei areas and, as a result, could bypass the frantic hunt for information and fast-track their responses.

The coronavirus epidemic teaches us — once again — that a robust supplier-monitoring system that maps sub-tier dependencies is a basic requirement for today’s supply chain and sourcing professionals.