ISM CEO Derry provides deep dive into impact of COVID-19 on supply chain and business operations

Last week, in this space, I wrote about the second member survey by the Institute for Supply Management over the last few weeks on the impact of COVID-19, or coronavirus, on business and supply chain operations.

The link to the full story can be found here.

While I will not re-hash all of the survey's findings in this space, it is worth highlighting one of its key points. Going back to the first survey, which found that more than 80% of respondents indicated their companies would see some type of COVID-19-related disruptions. But, by the end of March, when the second ISM member survey was conducted, that tally jumped to 95%.

That data point is notable for myriad reasons, with the chief one being that nearly all ISM members now maintain they are dealing with disruptions stemming from the ongoing pandemic. And it was made clear to what extent by ISM CEO Tom Derry, in an interview.

“The increase from 80% to 95% of companies reporting an impact from supply disruptions is not surprising, for two reasons,” explained Derry. “First, given the multi-tier nature of many supply networks, some companies not directly exposed to suppliers in China (but exposed, for example, through their suppliers' suppliers) might not have seen the impact as immediately as those sourcing directly from China. But by now, every one is seeing the impact of the disruption flowing through. Second, the supply chain interdependencies between the U.S. and China, the world's largest and second largest economies respectively, is so extensive that it would be surprising if less than 95% of companies reported disruptions. From a supply perspective, the U.S. economy is fully dependent on the Chinese economy.”

Shifting gears, when I asked Derry to provide some examples of shifts in supply chain planning, operations, and inventory planning, due to COVID-19, he said that companies are reporting many new changes.

Chief among them is a definite trend toward identifying new, non-Chinese sources going forward, but he said that comes with a caveat, of sorts.

“This doesn't necessarily mean companies are abandoning their existing supplier relationships, but looking to add – or at least be aware of – alternative sources for the future,” he said.

Tariff impact: In the second ISM survey, Derry pointed to how ISM is seeing further feedback that organizations that diversified their supplier base after experiencing tariff impacts are potentially more equipped to address the effects of COVID-19 on their supply chains.

When asked as to why that is the case, Derry made the point that ISM's PMI (manufacturing) and NMI (non-manufacturing) data showed a marked increase of companies proactively responding to the imposition of tariffs on Chinese exports in 2018 and especially in 2019.

“The search for alternate suppliers noticeably ramped up starting in September 2018 and continued at a strong pace right through the end of 2019,” he said. “The pace of identifying alternate suppliers noticeably increased after the threat of 25% tariffs was announced in May 2019.”

As previously stated, the ISM’s surveys have helped to put the COVID-19 pandemic's impact on business and supply chain operations into better and clearer perspective. What happens next, or how soon, in regards to this situation, at a time when it is clear political leaders want to re-open the economy, in contrast with a still too low number of Americans needing to be bested for COVID-19, makes for complicated times, to say the least.

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