10 Ways to Prepare for Global Trade Disruption
Finished goods importers are especially vulnerable when unexpected disruptions take place. These suggestions can help you through what is shaping up to be a trying 2020.
1. Treat your response to COVID-19 as a risk management and mitigation project. There has to be C-level recognition of imminent supply chain threats and an organization-wide focus on addressing those threats. Form a supply chain risk mitigation team that is made up of professionals from sourcing, purchasing, sales, logistics, finance, and IT.
2. Incorporate S&OP best practices. Because the sales and operations planning function compares forecasted/budgeted supply chain outcomes with actual results and then makes operational adjustments, importers will have a leg up on how best to mitigate supply chain risks.
3. Develop a response plan. Conduct a current-state analysis of all outstanding purchase orders (POs) placed on vendors in the affected country. Based on the outcome, execute a rolling review on the status of all outstanding and planned PO releases. Done on a product category and item-specific level, this provides a detailed view into immediate and medium-term actions.
4. CALL YOUR vendors twice weekly. Use these calls to understand where in the supplier's master production schedule your POs are accounted for. This is essential to understanding updated cumulative lead times (CLT). After the previous night's review with vendors, hold a daily morning huddle with the risk mitigation team to formulate PO-specific risk mitigation activities.
5. Change ERP or MRP software with PO-specific updates in hand. Unless CLT updates find their way into supply chain planning software tools, the system will continue thinking that in-house dates are accurate when they're not.
6. Make ocean container bookings three weeks before the desired sailing date. Whereas normal trade practices call for a two-week window for container bookings, an extra week may help secure space on ships. Also, anything longer than three weeks may result in steamship lines rejecting a booking, so it's best not to extend things too long. Make sure vendors aren't exaggerating booking needs in an effort to secure space. If a vendor books for five containers when they only need two, steamship lines will soon pick up on no-show bookings and potentially refuse future bookings.
7. Engage with freight forwarders, customs brokers, and other logistics service providers daily. In addition to providing vital transportation services, logistics service providers (LSPs) can offer up-to-date market intelligence on issues ranging from congestion at origin ports to destination drayage bottlenecks. Insist that vendors and LSPs are in daily contact with one another regarding shipping needs, and that they convey the results of those daily huddles back to you. The transition from manufacturing to shipping is vital to CLTs, and a lack of communication between supply chain players can cause unneeded delays.
8. Formulate a strategy for possible continuation of disruption beyond the end of the first quarter. Importers negotiate ocean freight rates with carriers and non-vessel operating common carriers in the March-April time frame. As part of that negotiation, hammer out clauses on ocean freight rates, no-role clauses, arbitrary charges, and the acceptance of general rate increases and/or peak season surcharges.
9. Consider alternative ports of lading and/or ports of discharge. Because some ports in China and the United States run the risk of bottlenecks when production ticks upward, it may be prudent to consider other ports. This will require a change in CLTs, but the net result may actually be better.
10. Include the use of air freight in your risk mitigation plan. Airfreight rates from China or the country experiencing disruption are through the roof, so it's best to engage now with freight forwarders for updates to both rates and air cargo capacity.
Source: Dan Gardner, President, Trade Facilitators