Global Supply Chains and the Coronavirus

Stephen DeAngelis

February 04, 2020

The coronavirus outbreak that started in Wuhan, China, is looking more and more like a pandemic. The consequences of the coronavirus outbreak are being felt throughout the global economy, with stock markets tumbling and companies beginning to to worry about their supply chains. Dan Harris (@danharris), an international lawyer and founder of Harris Bricken, asks a question on many executives mind, “What is going to happen to my supply chain?”[1] His answer is not very comforting. He writes, “I don’t know and there is probably no way to know right now. I hate having to give an answer like this.” One reason Harris, and many others, are so unsure of the future is because they don’t trust the news coming out of China. Renaud Anjoran (@ranjoran), a business executive based in China, writes, “The situation is pretty dark, with a new virus spreading like wildfire and governments resorting to extreme measures. Nobody believes Beijing’s official numbers.”[2] One thing is certain. Global supply chains are being affected. Noting the seriousness of the situation, analysts from Gravity insist, “The slightest disruption in manufacturing, raw materials, or shipping processes can and will significantly impact the supply chain, preventing companies from meeting their obligations creating catastrophic consequences.”[3]

Early effects of the coronavirus on supply chains

Gravity analysts report, “Wuhan is considered the transportation capital of China, connecting Beijing, Shanghai, and Hong Kong. It is the home to over 500 factories, including those of major automakers such as Honda Motor, Nissan, and GM, along with other corporate hubs to include, IBM, Honeywell, Siemens, and Walmart.” Richard Wilding (@SupplyChainProf), a Professor of Supply Chain Strategy at Cranfield School of Management, notes, “This is a major disruptive event with global implications for supply chains. Air freight is already down 50% and we are seeing a backlog of shipping on the Yangtze River.”[3] Wilding notes the automotive sector is likely to be the industry most affected by the outbreak. He explains, “We are hearing that a car plant factory in Germany has had to close because it does not have the raw materials. This is a trend that is likely to continue in the short-term. … 50% of all manufacturing in Wuhan is related to the automotive industry.”

Wilding indicates the technology sector will also be affected since 25% of technology supplies come from the region. He adds, “The one mitigating factor is that this has happened over Chinese New Year where production is typically down 20% anyway, so companies are already prepared for some fall in output. Chinese New Year is a known disruption to global supply chains with employees leaving factories in mid-January, with operations halted between 24th and 30th January, employees return from the New Year break and operations usually return to normal by mid-February at the latest. The impact of the Coronavirus is that operations have been halted until the 9th February in many facilities.” Matt Leonard (@Matt_Lnrd) reports, “Wuhan is also home to a number of drug manufacturers, but the U.S. Food and Drug Administration said those manufacturers have not reported an impact on supply as a result of the outbreak, according to Wired.”[5] Regardless of whether drug production is affected, healthcare facilities are already feeling the affects of the outbreak reporting difficulties finding testing kits and protective masks.

James Kynge (@JKynge) and Mercedes Ruehl (@mjruehl) report, “Authorities in China are already taking steps to reduce the mass migration of workers back to factories after the Chinese lunar new year holiday to reduce the risk of infection. For example, Suzhou, a tech hub north-west of Shanghai, has barred businesses from resuming operations before February 8 … With the coronavirus death toll still rising rapidly, … the disruptions to supply chains for crucial tech products may well be further affected. This is especially the case for tech factories in Hubei.”[6] Leonard cites Wells Fargo analysts, who write, “A prolonged outbreak in the area could prevent workers from going to work or even cause temporary factory closures, which would weigh on Chinese production. China’s more integral part in the global supply chain today means a decline in its output has the potential to disrupt U.S. production.”

What can companies do now and in the future?

Leonard reports, “Companies that rely on manufacturing from facilities in Wuhan, China, are considering alternative suppliers as facilities in the region face potential production delays.” Unfortunately, looking for alternative suppliers may be too little too late. Wilding suggests, “Companies need to urgently review their supply chain to find out how exposed they are. They need to ask the question as to where their suppliers and suppliers’ suppliers are located and review other sourcing locations, which although often more expensive can protect from disruptive events such as this. We may also see a greater drive towards automation, as clearly with less people working side-by-side in factories, the lower the risk of an occurrence such as this.” Wilding isn’t alone in believing supply chain visibility is one way to counter the current coronavirus outbreak as well as future outbreaks.

Roddy Martin (@RodMPWB), chief digital healthcare transformation officer at TraceLink, writes, “The coronavirus is spreading globally because of the network effect. Virus infection increases exponentially as the planet goes about its normal life, and more people come into contact with one another on a daily basis. They travel, and goods move, but so does the virus, whether we like it or not. At the same time, however, the networked operating model of supply-chain capabilities offers a solution to the exploding coronavirus issue.”[7] He continues:

The virus moves as its own supply chain, from source to recipient (patient), then from patient to patient under a network model. It doesn’t recognize boundaries, and it thrives on physical connections. Therefore, to counteract the spread of the virus, we need global transparency and analysis of related events. The capability to codify symptoms, and share lessons is fundamental. By learning from confirmed infections, we can model and counteract outbreaks quickly and efficiently. The challenge is that we need agile digital and IT capabilities that allow us to do things at scale — things we couldn’t do in the past because of technology and complexity constraints. In a nutshell, the solution to the coronavirus issue lies in the ability to build end-to-end supply-chain visibility, performance and risk-analysis capabilities. In addition, we need to create responsive planning and execution processes across countries and cultures. To solve the coronavirus crisis quickly, we must pool global supply-chain thought leadership, capabilities and systems, and holistically build a platform that stretches from the evolving patient network back to the supply system. Then we must find and manufacture a vaccine, distribute product, and ensure that we locate all patients who need treatment. This end-to-end supply system must be designed around achieving the ‘moment of truth’: the point at which patients receive safe vaccinations. Delivery must be on time, in full, right the first (and every) time, compliant, and predictable.

The kind of supply chain visibility Martin is proposing is only possible when leveraging cognitive technologies. Data must be gathered and analyzed in near-real-time and insights must be made widely available to concerned parties. Rosemary Coates (@Rosemary_Coates), President of Blue Silk Consulting, writes, “If you haven’t already started working on an alternate sourcing and manufacturing strategy that excludes China, you should start immediately. … The Coronavirus should be a serious wake-up call for supply chain professionals to develop several alternate sourcing and manufacturing plans in different regions of the world, in response to all kinds of world events. While natural disasters and events such as the Coronavirus cannot be predicted, you can develop alternate plans in case they do happen. Start now. Have a Plan B and a Plan C – just in case.”[8] The coronavirus outbreak is bound to get worse before it gets better; nevertheless, it’s not too early to start working out solutions for the next potential outbreak.

Footnotes
[1] Dan Harris, “What’s Going to Happen With My China-Dependent Supply Chain?China Law Blog, 2 February 2020.
[2] Renaud Anjoran, “China Epidemic: Real Effects on Logistics and Manufacturing,” QualityInspection.org, 2 February 2020.
[3] Staff, “Global Supply Chain Threat — the Coronavirus Disruption,” Gravity Blog, 30 January 2020.
[4] Staff, “Coronavirus: major disruptive event to global supply chains,” Press Release Cranfield University, 3 February 2020.
[5] Matt Leonard, “Supply chains plan for coronavirus disruption,” Supply Chain Dive, 29 January 2020.
[6] James Kynge and Mercedes Ruehl, “Coronavirus hits Asia’s tech supply chain,” Financial Times, 29 January 2020.
[7] Roddy Martin, “A Supply-Chain Approach to Solving the Coronavirus Challenge,” SupplyChainBrain, 3 February 2020.
[8] Rosemary Coates, “Coronavirus and Your Global Supply Chain,” Supply Chain Management Review, 28 January 2020.