Companies pursue alternative suppliers to spread supply chain risks and build resilience

The COVID-19 pandemic is forcing companies to explore new suppliers and hasten digitalization, as part of their response to the supply chain disruption caused by the pandemic.

According to DNV GL’s Viewpoint survey of 1,142 companies, 56% of the respondents have experienced supply chain disruption due to the pandemic.  The main causes of disruption are delays in supplies (45% of respondents), logistic issues (34%) and limitations to international trade (24%).

As a result, 57% are planning to strengthen and diversify their supply chain by working with new suppliers. Companies are also looking to mitigate the impact of the pandemic by the introduction of digitalization (36%), revised supplier criteria (36%) and review stock management practices (36%).

“With severe effects such as reduced sales and revenues (57%), reduced production (39%) and increased operational costs (35%), it has been extremely challenging for many companies to continue doing business. It is not surprising that the strategic change most companies have identified is to spread their supply chain risks by diversifying their supplier base, providing them more than one leg to stand on in the future,” says Luca Crisciotti, CEO of DNV GL – Business Assurance.

Companies are not just looking elsewhere to respond. The survey shows that companies are working actively in a collaborative and constructive way with existing suppliers to find pragmatic solutions. This follows the recommended practice to first know your suppliers, set priorities, and increase communication and collaboration. The survey shows that 77% identify and assess risks, 45% identify mitigating actions, 42% implement mitigating actions and 50% monitor implemented actions.

This indicates a level of maturity in the management of existing suppliers that is very positive and helps provide a tailored response. At the same time, only 26% have control of indirect suppliers, which includes those beyond tier 1. Knowing one’s suppliers end-to-end is essential in order to build a complete and resilient response at any time and perhaps even more so in a vulnerable and volatile situation caused by the pandemic. COVID-19 is pushing supply chain risk management higher on the agenda and companies are forced to increase their maturity and improve their supply chain resilience.

“There is nowhere to hide. Every issue must be tackled head on and quickly. Resilience has become less about maintaining a steady state. It is about being able to assume an agile and dynamic approach. COVID-19 is forcing companies to reimagine resilience, to change and adapt. It is good to see that companies are learning and moving in the right direction,” says Luca Crisciotti.