The risk of the novel coronavirus to global supply chains is significant, experts say. And it’s easy to see why. For one, there is no historical precedent for the potential impact of the coronavirus on increasingly complex, global supply chains.
Recent disruptions, like SARS (2003), the Fukushima nuclear disaster in 2011, and severe floods in Thailand (2011), swept through regions with far less global manufacturing heft than central China, the epicenter of the coronavirus outbreak. For context, more than 300 of the world’s top 500 companies have a presence in Wuhan, the hub of transport and industry for central China. Meanwhile, China as a whole leads the world in manufacturing output (USD 2.01 trillion), percentage of national output generated by the manufacturing sector (27 percent), and percentage of global manufacturing (20 percent), according to data from the UN Conference on Trade and Development.
The shift in the locus of global supply to China has been decades in the making. In 2000, for instance, China only ranked fourth behind the U.S., Japan, and Germany in manufacturing output.
More than ever, China’s manufacturing strength is being felt today. Multinationals like Microsoft and Apple have already lowered their quarterly revenue guidance based in part on supply chain exposure in China. In its investor call, Apple noted that even though its iPhone manufacturing hubs lie outside of Hubei province, those facilities, while reopened, were experiencing slower ramp ups than anticipated. Microsoft, unlike Apple, doesn’t manufacture products in China – though it does have a presence in Wuhan, but the computers on which Microsoft’s Windows operating system is installed are manufactured in China. And so, Microsoft is expecting the supply chain disruption in China to have a ripple effect on its bottom line. The Microsoft example, in particular, points up the complexity of today’s supply chains, where not just finished products but component parts are manufactured around the world.
Microsoft, here, is not alone. Nor is coronavirus only an issue for China-based manufacturing. The coronavirus has spread globally to manufacturing powerhouses Japan, South Korea, and Italy, as well, with early cases of community spread now being reported in the U.S. and Germany, as well.
Further exacerbating the risk of coronavirus to global supply chains has been the proliferation of just-in-time networks, in which companies have sought to increase inventory efficiency and decrease waste and cost by receiving goods only as needed for production. The risk has long been there: unlike with just-in-case inventory management, just-in-time producers don’t sufficient inventory to absorb the kind of supply shocks that we might see with the coronavirus.
Indeed, companies might be courting the supply-chain bullwhip effect, which Director of the MIT Center for Transportation and Logistics, Yossi Sheffiis, explains as follows:
At each level of the supply chain the decline in demand sparks a bigger decline in orders from suppliers. Each company reasons that they need to quickly cut production to adjust to declining sales and work off their now-bloated inventory. The most vulnerable companies are small and leveraged suppliers upstream in the supply chain that are in danger of going under.
How, then, do businesses get ahead of the supply-chain risk and avoid falling prey to the bullwhip effect? Experts have advised taking a few basic measures. They include:
- People management. Specifically, be able to track down where your employees are; also, be flexible with work arrangements.
- Information management. Be a font for reliable information for your employees.
- Scenario planning. Run outage scenarios to see if you would be able to handle an unforeseen disruption.
- Build a plant specific EOC. If possible, expand your corporate emergency operations center to the plant level.
When it comes to designing your response to supply-chain disruption to minimize exposure, in particular, prioritize based on a systematic assessment of your product portfolio and customer base. Don’t forget to review suppliers, as well. Know who makes what, and what their inventories would look like in the event of a disruption.
Sound daunting? It doesn’t have to. Technology is available to manage the supply chain impact of coronavirus. The Noggin Epidemic Response Module, for instance, helps companies respond to the novel coronavirus event and protect their people and operations from the virus threat. A set of dashboards for organizations to prepare for and manage their response to the Coronavirus epidemic, the Noggin Epidemic Response Module encompasses business continuity, crisis management, travel risk management and worker safety, providing:
- Situational awareness
- Authoritative guidelines, maps and facts
- Best-practice plans and checklists to help you determine your response
- Logging of updates, tasks and decisions
- Case management for affected workers
The Module offers concrete supply-chain management benefits, as well. Those include:
- Identify, assess, and manage the risks of disruption caused by the coronavirus to products and suppliers
- Track supply chain and supplier dependencies
- Track parts or materials at risk of supply disruption
- Record and manage actions and decisions made in response to those risks, to address or prevent blockages
Finally, the coronavirus represents a significant risk to global supply chains and to the viability of businesses that rely on them. If you haven’t prepared for the shock, it’s well past time to get started. Luckily, it’s not too late. Technologies like the Noggin Epidemic Response Module help protect people as well as safeguard the continuity of operations in the face of public health crises.
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