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Stamford, Conn., March 17, 2020

Gartner Says Supply Chain Leaders Should Focus on Three Key Impact Areas to Mitigate Disruption by the Coronavirus

Workforce, Products and Cost are Most Impacted by New Virus

With the new coronavirus impacting global supply chains, supply chain leaders should focus on three impact areas for their initial crisis management, according to Gartner, Inc.

”As COVID-19 spreads globally, we are seeing increased supply chain disruption, but also changes in consumer spending habits,” said Sarah Watt, senior director analyst with the Gartner Supply Chain practice. “Supply has been impacted in three primary ways: limited access to employees due to quarantines, factory closures or manufacturing slowdowns and limited access to logistics to move goods. Most supply chain organizations are in crisis management, assessing impacts and response on a daily, if not hourly basis.”

Gartner recommends that supply chain leaders focus their efforts on three main areas.

Impact Area 1: Workforce

In order to limit the impact of COVID-19, many employees have been instructed by local governments or advised by their employers to stay at home. Employers have put in place controls around travel and site visitors. For factories, this resulted in goods not being produced and exported to dependent markets or other factories. As long as this situation continues, supply chains won’t work as intended.

“As the virus extends globally, supply chain leaders need to think about how to protect the health of workers, and support individuals who are ill. Providing clear and consistent communication through human resources and travel security is essential,” Ms. Watt said. “As this crisis is ongoing, the risk is that crisis management teams become fatigued and make poor decisions.”  

Impact Area 2: Products

COVID-19 has the potential to change the competitive landscape. Suppliers for commoditized products are at risk to lose market share, as clients will look into substitute suppliers when they don’t receive their products on time. Products associated with a higher degree of brand loyalty are likely to be less impacted in the short term because customers are more willing to wait. As the virus progresses, consumers might adopt more conservative spending patterns, focusing on essential goods.

When forced to make trade-off decisions, supply chain leaders must analyze and forecast the impact of the new coronavirus on customer demand and product availability. Prioritization and trade off can be made based on high-revenue or high-profit margin products that are in demand.

“Supply chain organizations need to frequently reassess their supply and demand plans based on the evolution of the virus and consumer sentiment,” Ms. Watt continued. “Supply chains may also experience sharp increases in demand for products or unexpected consequences from the event, such as panic buying for essential items.”

Impact Area 3: Costs

There is a variety of financial impacts to organizations with increased costs for shipping, and more broadly concern about companies meeting their financial objectives.

“Even contractually agreed prices and quantities of materials might no longer be valid. Supplier could invoke force majeure clauses or otherwise look to pass on additional costs up through the supply chain,” Ms. Watt said.

Any additional cost related to the coronavirus should be treated as an issue that concerns the whole organization rather than a single department. This makes it easier to assess the costs against the organization’s ability to achieve its strategic objectives and manage stakeholder expectations.

“It’s also a good idea to sit together with the legal department and analyze all supplier contracts. When the time renewal comes, make sure that the organization is financially protected against similar situations that might occur in the future. Supply chains will not be the same after this event. There will be an increased focus on resilience, risk exposure and business continuity plans going forward,” Ms. Watt concluded.

Gartner clients can learn more in the report “Coronavirus Alters Supply Chain Dynamics Impacting People, Products and Costs”.

Learn more about how to lead organizations through the disruption of coronavirus in the Gartner coronavirus resource center, a collection of complimentary Gartner research and webinars to help organizations respond, manage and prepare for the rapid spread and global impact of COVID-19.

About the Gartner Supply Chain Practice

The Gartner Supply Chain Practice brings together the most relevant analysis, peer-based best practices, metrics and data across Gartner and offers supply chain leaders a platform to make the choices that will drive their business forward.

Additional information is available at https://www.gartner.com/en/supply-chain. Follow news and update from the Gartner Supply Chain Practice on Twitter and LinkedIn using #GartnerSC.

About Gartner Supply Chain Symposium/Xpo

Gartner Supply Chain Symposium/Xpo is the most important gathering of CSCOs and supply chain executives. Supply chain leaders will gather to gain a strategic view of the trends disrupting their business and the insights and frameworks they can use to build agility and robustness into systems, processes and decision making.

Upcoming dates and locations for Gartner Supply Chain Symposium/Xpo include:

May 11-14: Orlando, FL

June 15-18: Barcelona, Spain

About Gartner

Gartner, Inc. (NYSE: IT) is the world’s leading research and advisory company and a member of the S&P 500. We equip business leaders with indispensable insights, advice and tools to achieve their mission-critical priorities today and build the successful organizations of tomorrow.

Our unmatched combination of expert-led, practitioner-sourced and data-driven research steers clients toward the right decisions on the issues that matter most. We are a trusted advisor and an objective resource for more than 15,000 enterprises in more than 100 countries — across all major functions, in every industry and enterprise size.

To learn more about how we help decision makers fuel the future of business, visit gartner.com.

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