The Impact of the Coronavirus (Covid-19) on Global Supply Chain Networks

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Wednesday, March 4, 2020

As the Covid-19 outbreak moves from a global health issue to one that affects all business operations, the pressure on supply chain is growing. This outbreak demonstrates both the good and bad within the supply chain market, from leadership to operations, and everyone can learn to be prepared for future cases.

Article 6 Minutes

Humanity’s struggle to get on with life and work is regularly punctuated by health epidemics. History’s classics like The Black Death (25 million dead) and Spanish Flu (50 million dead) affected almost unimaginable numbers. Modern outbreaks show the power of medicine, politics, media and civil powers to limit the casualties, but they have a far greater impact on ever-leaner business operations.

Take 2009’s H1N1 flu outbreak (18,000 dead) with Bridgestone factories shutting down in Mexico and 2014’s Ebola (12,000 dead) that saw a major impact on Africa’s raw material exports as the world tried to overcome the personal, political and practical dramas that played out.

Some were comparing (perhaps hoping) that Covid-19 would be similar to 2002’s SARS outbreak in China. But since then, China has become more important in supply chains for automotive, computing, medicine and agriculture and other industries, plus a supplier of base goods and raw materials from steel to rare earth metals.

The pathology and impact of 2019’s coronavirus (Covid-19) is still yet to be fully understood, but with 90,000 cases and 3,000 deaths (and figures continually rising), the alarm over any business impact compared to the health risk seems disproportionate. This supersized impact is, of course, down to our more interconnected, mobile and intensely supply-chain linked world. Already, good news reports suggest supply chains are coming back up, but we’re not out of the woods yet.

Coronavirus-COVID-19-Global-Cases-Johns-Hopkins-CSSE-Interactive-MapSource: reported Covid-19 cases

What started as a local outbreak quickly spread due to China’s intensely over-populated cities and booming (and crowded) transportation networks. As carriers reach international hubs, the global impact is being felt with Italy, Japan and Iran currently showing as major hotspots, spreading to goods and supply chains fast.

Impact of the Coronavirus on global supply chains

With much of China now isolated and industrial production impacted, the supply chain effect is being felt worldwide. In dealing with the Covid-19 outbreak, supply chain businesses will rely on the lessons learned from previous outbreaks, and their people, processes and technology to help them through the current trouble.

On the business front, global maritime shipping volumes have already seen a huge decrease, with shipping from China to Europe down by 20% according to Harvard Business Review. Experts predict a throttling down or idling of production around major industrial nations, much of that impact is due to reduce stockpiling or warehousing of supply and an improved just-in-time delivery from anywhere in the world.

As the situation tightens in coming weeks, supply chains will have to become more flexible, sourcing parts or materials from non-affected areas. They’ll manage better for slightly longer, but prices and competition will rapidly rise. With global reliance on China as a source of parts and materials, the supply chain sector is already in emergency planning mode.

Supply chain practitioners must decide how to cope with the short-term, first-order effects directly related to the disease and second-order effects as transport impacts affect supply chain routing, timing and deliveries.

People are vital in establishing a response, as supply chain businesses launch war cabinets, centers of excellence or emergency tiger teams to deal with the problem. Expertise from previous pandemic campaigns and current insights into granular local-level supply issues will be vital as many businesses have been focused on green dashboards and strategic overviews for too long.

From that information, new processes can be planned and put into operation, based on what’s locked down, what can be moved and when quarantines are lifted. Based on those timelines and availability, businesses must put people and resources in the right places to maintain supply chain continuity or start recovery efforts as early as possible, routing around impacted areas, jammed ports, and stop-start supply of parts or materials.

Helping in this respect will be technology. Companies still operating with legacy technology will find it harder to keep up with the by-the-minute changes happening as a result of Covid-19. Upgrading to cloud-based solutions, 5G and IoT hardware will enable companies to keep a live view of their situation and improve their reactions.

While now may not be the best time to invest in complex IT, point solutions able to deliver Covid-19 information to partners, suppliers and workforce will provide some benefit. Using chatbots, virtual town halls and so on to deliver information, while agile teams build new IT solutions can work around legacy tools that are slowing down recovery efforts.

Dealing with Covid-19 in the long-term

Already, we see major names like Fiat, Chrysler and Hyundai shutting down plants or suspending production as they can’t source parts from China. Any planning should include options for a sizeable long-term, global-level impact from Covid-19, with resourceful planning and lateral thinking coming into play. For example, where shutdowns from one location occur, that should see other materials freed up to be used in another location.

Alongside supply chain planning, every business should be dusting off their business continuity plans to see what actions can be taken to minimize the impact or keep any company operating as long as possible. This could involve moves to part-time shifts or working patterns, furloughs or redundancies, or partnering with other businesses.

On the ground with Covid-19 in China

In China, stores are closed, workers are staying home and many people, both natives and immigrants are living with the outbreak. But progress is being made, the makeshift hospital in Wuhan that got so much coverage has already shut down

“While our iPhone manufacturing partner sites are located outside the Hubei province — and while all of these facilities have reopened — they are ramping up more slowly than we had anticipated. Our stores in China and many of our partner stores have been closed. Additionally, stores that are open have been operating at reduced hours and with very low customer traffic.” – Apple

 

Elsewhere, there is word that supply chains are starting to get back into gear, but if they bring with them further outbreaks through carriers or contamination (Covid-19 can live on metal surfaces for up to 12 hours, fabric for 6-12 hours, but can be killed by 27-degree heat/liquid, detergent or alcohol) the issue will grow.

There are long-term reports of China using forced labor to work for suppliers and manufacturing partners for global businesses. As the impact of Covid-19 grows, they could well be used to help get supply chain companies and related organizations back up and running. Every business will need to keep its reputation management professionals in the loop and investigate locally, as this could become a thorny issue.

In the immediate and long-term, Covid-19 could see China using its wealth to help mitigate the situation. In the short term, it could provide loans to valuable partners to ensure continuity, while in the future, could partner with suppliers or build new production plants globally to reduce the localized impact of any future event.

This will help bolster foreign currency reserves and balance sheets as it becomes a more active trading partner, ignoring any political questions over state aid, expanding China’s powers and so on.

Whatever your role in supply chain, Covid-19 provides an opportunity to revisit your structures, partnerships and contingencies in a world that’s likely to see more shake-ups and dramas in the near future.

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