5 tips for handling the restart, including why you should start now
COVID-19 has shuttered some production lines and caused worldwide supply chain disruptions. Once the global pandemic ends, restarting the supply chain will bring a new level of complexity.
“Plants may have experience starting up after a summer or holiday shutdown, but this is a unique situation,” said Andy Moses, senior vice president of sales and solutions for Penske Logistics. "Some companies may be looking at a six-to-eight-week cessation of production, and their transportation providers and suppliers have also been experiencing turmoil."
In addition, government stimulus activity has altered the market. “You have tremendous movement in medical supplies through FEMA and the $2 trillion stimulus that will try to jump-start the economy through infrastructure,” Moses said. “All that will impact capacity.”
Companies can prepare now by embracing these five tips for restarting the supply chain after COVID-19.
1. Examine Your Carrier Base
The lack of cash flow some carriers are experiencing is going to affect the carrier base. “After the Great Recession, there was a substantive shakeout in carriers,” Moses said. “I think in this case, it is reasonable to anticipate there will be several carrier bankruptcies or carriers that can’t restart because of a lack of cash flow for two months.”
Moses recommends companies examine their carrier base and, if possible, do a financial analysis. “If that isn’t in your procurement group’s sweet spot, the right 3PL can help,” he said. “Identify those companies that might be troubled and set up meetings to have frank discussions.”
By working together, shippers and their transportation partners can find ways to address cash flow issues. “In extraordinary times, extraordinary measures may be needed,” Moses said. “That could be changing the payment terms to seven days from 30 days. It is something to consider as a good partner.”
What’s more, if a carrier declares bankruptcy, a shipper may have to spot-buy a lane until it can resource it, and typically spot rates increase when capacity tightens. “It might be smarter to work with that carrier on cash flow issues rather than not,” he said.
As part of the conversation, shippers should examine the whole book of business they have with a carrier. "It could be that, of the 25 lanes they have with you, five are unprofitable, but they took them as part of the bundle. You could discuss altering those,” Moses said. “Have a collaborative attitude so you can help each other."
2. Assess Your Supply Base
The question of financial health also applies to the supply base. “Many of those companies haven’t seen cash flow for two months,” Moses said. “Have open conversations with them to try to collaborate and create an environment where both companies can survive and thrive.”
Companies also need to prepare for the resumption of overseas shipments. “When shipments arrive, can you process them, or is there a Plan B? Are you going to incur demurrage fees on containers if you can’t unload them? You may need to secure warehouse space short-term,” Moses said. This is an ideal time to identify the capacity, equipment or facilities that may be needed when shipments resume.
3. Review Your Assumptions
Post-COVID-19, there will be a new definition of normal. Right now, it’s safe to acknowledge that the situation is very fluid and could change rapidly. "It may not be practical for you to think that everything is going to happen the way it always has,” Moses said. “You need to look at every piece of the supply chain and examine your assumptions and your realities.”
It’s prudent for shippers to have a Plan B and C. “Plan B could be as simple as having a relationship with a brokerage company so you can dial up capacity quickly,” Moses said. “You can get brokerage contracts in place now so you know who to talk to and which lanes or areas may be critical.”
Lanes may shift if freight patterns change. “Your freight might not come into the Ports of LA and Long Beach like it always has,” Moses said. “You have to check all of your assumptions. If you’re running through your checklist and say, ‘I don’t need to worry about this because it has never been a problem,’ that’s the one most likely to trip you up.”
4. Ensure Visibility
The supply chain comprises multiple moving parts that all must come together at precisely the right time. Technology can provide visibility to help shippers monitor the health of each individual movement as well as their entire transportation network. “Once our major disruption hurdles are cleared, shippers are still going to want to know the status of loads and whether there is a risk of a delay due to weather or traffic,” Moses said.
5. Start Early
By working with providers now and preparing early, shippers can help ensure a fluid network. It is essential to start soon, as people may be hard to reach. "So many people are working remotely, so you can't pick up the phone and call their office like you used to do,” Moses said. “Give yourself enough time to get everything in place."