Managing the long-term impact of COVID-19 on capital projects: supply chain
This is the third in a three-part series about managing the long-term impact of COVID-19 on capital projects. Read part one, a discussion about changes to managing capital projects, here; and part two, a discussion of force majeure contractual language as it applies to COVID-19, here.
COVID-19 has proven a dire disruptor of the global supply chain. Combined with the war in Ukraine and sanctions against Russia, our tightly interdependent international supply chain has been threatened. Now more than ever, knowledge, flexibility, and creativity are critical to overcome supply chain challenges.
For decades, supply chain organizations have employed traditional strategies to improve their customers’ bottom lines. Those processes, which must be re-evaluated in today’s market, include the following:
- Just-in-time delivery
- Global sourcing
- Leveraging spend
Just-in-time (JIT) delivery can be as simple as delivering goods directly to the hook of a crane for installation. A broader JIT practice taps vendors to store key materials for owner organizations; this reduces the owner’s need for dedicated warehouses to store large quantities of raw materials, parts, or components. Today, that JIT strategy may fail to support fabrication schedules or delivery needs. Under current market conditions, owners should consider storing more materials themselves to avoid shortages.
Global sourcing has yielded a much larger pool of available manufacturers and suppliers than in days past. These days, successful global sourcing requires a keener understanding of suppliers’ processes, capabilities, and manufacturing locations. It also requires a thorough evaluation of potential challenges—e.g., municipal lockdowns, sanctions, and port or logistics issues—that could negatively impact delivery. Additionally, owners should examine their own processes for expanding sources to meet delivery needs. This necessitates a complete and continuous adherence to the internal approval process for securing alternative supply sources.
Leveraging spend involves organizations reducing their traditional supply base to secure better price, delivery, service, and quality. This strategy proved effective when the global supply chain operated routinely. In today’s changing market, owners should explore options to establish multiple supply sources and thus expand their supply base.
With proactive planning, flexible project execution, and vigilant attention to detail, owner organizations can meet the new supply chain challenges. To accomplish this, they must:
- Increase transparency with vendors and suppliers
- Understand manufacturing production runs and when orders must be placed to secure a spot in the production cycle
- Gain a comprehensive understanding of each manufacturer’s production process
In particular, owner organizations should ask these important questions:
- Where are materials being produced?
- Does the source country continue to shut down industrial centers?
- Are there both primary and secondary sources of supply?
- What alternative sources of supply are being quoted by vendors and suppliers?
- Are the delivery and quality of known alternative sources comparable?
- Can more readily available alternative products be substituted, and if so, what organizational approvals are necessary?
- Does the approval process need to begin immediately?
- How does the inability to obtain the necessary components, subcomponents, and raw materials impact the greater business interest?
- What is the true total cost of goods ownership today, beyond standard costs like purchase price and shipping costs?
Overall, increasing your company’s knowledge of the global supply chain, being flexible to new and changing norms, and considering creative alternative solutions can help you meet and beat supply chain challenges. COVID-19 and subsequent global events have rocked the supply chain boat—but we are capable of righting it and restoring an even keel!
