The coronavirus that emerged in China is now shaking the world economy – including some major U.S. companies – and stoking fears of a global recession.
But, as companies go about mitigating damage, there are lessons they can learn to be better prepared for another rare worldwide crisis, says Hitendra Chaturvedi, a professor at the Supply Chain Department of W.P. Carey School of Business at Arizona State University and an expert on global supply chain sustainability and strategy.
“The coronavirus is an abnormal occurrence,” Chaturvedi says. “Businesses cannot completely insulate themselves from such events, but they can certainly reduce risk so it will hurt but not be life-threatening. The whole idea is, what is the strategic insurance policy against such unexpected events, and what is the cost businesses are willing to bear?
“We have had risk mitigation and disaster recovery plans for data centers for decades now. Why should we not have the same for our manufacturing operations?”
Chaturvedi offers these suggestions for companies to prepare for a worldwide crisis that could affect their business:
Localize more inventory. “Holding inventory in multiple locations closer to your customers makes sense in many cases, even if it may be costlier than in other countries,” Chaturvedi says. “I think companies in the U.S. will start to keep more inventories here as a reaction to the coronavirus.”
Localize core manufacturing. “If your current business relies heavily on products being made in China, you’re probably concerned right now,” Chaturvedi says. “Consider having a manufacturing operation in the U.S., or at least part of your operations here, so even though the cost may be high, business survival will not be severely impacted. It’s another way for companies to have more control when events happen out of their control.”
Separate R&D from manufacturing locations in other countries. “If it makes sense to maintain your core manufacturing outside the U.S., keeping research and development work closer to home ensures your future product development does not get impacted,” Chaturvedi says.
Invest in new technology for transparency in supply chain and disaster simulation. “Blockchain can easily provide transparency across the supply chain, Chaturvedi says. “Get visibility across at least tier 1 and tier 2 suppliers.
The more you know, the better you will be at spotting trouble spots and handling a crisis. Moreover, investing in Artificial Intelligence-driven risk simulation models based on numerous factors, including a global pandemic, nature events, or political instabilities may be a prudent choice. Just as schools conduct fire drills, companies should conduct pandemic drills as part of their risk mitigation and disaster recovery plan.”
“Events such as a worldwide health crisis are a standalone business risk and an amplifier of vulnerabilities,” Chaturvedi says. “The coronavirus may serve as another reason for companies to reassess their supply chain exposure. We often get complacent after a crisis settles down, but businesses who prepare for the next time will be in a stronger position to respond and recover.”
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Hitendra Chaturvedi (https://wpcarey.asu.edu/people/profile/3541031) spent over 30 years in progressive technology leadership positions with Microsoft, Newgistics, E&Y e-Business and A.T. Kearney. Chaturvedi also built a $100 million software company in India, GreenDust, where he implemented proprietary reverse logistics software at Amazon, Flipkart (Walmart), Samsung, Panasonic and Whirlpool. A computer engineer with a master’s degree from Louisiana State University and an MBA from Southern Methodist University, Chaturvedi has been widely covered in the media and is a subject matter expert on global supply chain strategy, sustainable supply chains, reverse logistics, ecommerce, artificial intelligence and machine learning. Chaturvedi is now a professor at the Supply Chain Department of W.P. Carey School of Business at Arizona State University.