What key steps can you take to limit the potential effects of the coronavirus on your organisation?
On 9 February, the world received news from China that it didn’t want to hear.
The number of confirmed deaths from the coronavirus had overtaken that of the 2003 Severe Acute Respiratory Syndrome (SARS), with more than 1 000 casualties.
In addition to that, the virus is spreading at an alarming rate. There are now more than 40 000 confirmed cases. And this number is increasing with as much as 20% every day.
While the virus is terrifying from a public health perspective, it is also alarming in terms of supply chain. Wuhan, China, the epicentre of the virus and now a city in total lockdown and complete disarray, is one of the world’s largest industrial hubs.
Procurious Founder, Tania Seary, takes a look at how the coronavirus is affecting global supply chains – and what you can do about it.
Production delays and factory closures
If you are currently manufacturing anything in China, especially in the Wuhan area, you can expect significant production delays.
Fashion fit innovation company Alvanon, who manufactures dress forms in China, has issued a statement saying:
“We expect at least a four-week delay on physical goods that have already been paid for. Our factory is currently closed, and while we are doing all we can to minimise delays, we currently do not know when it will reopen.”
Currently, all public gatherings in Wuhan are forbidden. All factories and public places are closed. The flow of goods in and out of the area has come to a halt.
Reduction in freighting capacity
The coronavirus is now confirmed in more than 23 countries. And the world’s airlines are responding by cancelling flights to and from China.
Airlines all over the world have ceased some or all of their China freight routes.
Sea freighting is also likely to be affected. If you have goods in transport from China, there may be significant delays in them leaving major ports. And when they do leave, there is a risk that the crew will become ill during the journey.
Freight is not the only thing that needs to come and go out of China. People also do, for business or leisure.
The restrictions on flights will start to influence business agendas.
Many international companies are shutting down their offices in China and restricting all travel.
The commodities market and broader economy
From a supply chain perspective, what is most concerning about the effect of the coronavirus is the already devastating impact that it is having on the commodities market and broader economy.
As one of the world’s largest consumers of commodities, decreased demand in the Chinese market has now caused many commodity prices to slump. Copper has fallen by 12% and crude oil by 10%. The Bloomberg Commodity Index has taken a 6% hit. Analysts expect these decreases to continue.
Economists warn that the influence on the broader economy could also be dire. They believe that the fallout from the virus will be significantly worse than the SARS epidemic.
The Chinese economy is much larger than it was then. But it is also weaker, owing to the continued US trade war.
China’s GDP growth is on track to slow (at least) in the first quarter, and analysts are not sure if it will recover. This will, in turn, affect exchange rates and emerging markets.
Developed economies are also expected to suffer. The downturn in Chinese tourism is expected to influence Australia’s economy to the tune of $1-billion.
What should you do?
How can you manage the risk that the coronavirus represents for your organisation?
Justin Crump, Procurious Consultant CEO, Sibylline, a world-renowned risk management consultancy, recommends that procurement takes the following actions immediately:
1. Understand cascading supply chain consequences
“You need to understand more than just your suppliers”, says Crump, “as it will be second-order problems that bite when you think you’re okay”.
To do this, Crump recommends that you dig further to understand supplier dependencies.
A great way to do so might be to survey your suppliers. Test their exposure to the virus and then try to mitigate any issues early.
2. Stockpile if you can
It might be too late for some, but Crump recommends that everyone who is able “tries to stockpile while you still can”.
This is difficult for those practising just-in-time (JIT) manufacturing.
But Crump thinks that if you can still action this advice you will benefit – as oil prices are substantially lower owing to a steep fall in demand.
3. Invest in resilience
Procurement should never be reactionary when it comes to risk. Crump reminds us that “now, more than ever, you need to invest in resilience”.
Crump believes that this ‘resilience’ needs to come in multiple forms. For example:
– Look into alternate suppliers – and move now to get ahead of your competitors
– Consider the influence on staff, families and customer relationships
– Think long-term about how travel and freighting might be affected
4. Consider the bigger economic picture
“It is tempting to focus on the now”, Crump says. But it is important to consider the bigger economic picture and how you might need to mitigate that risk (if that will even be possible).
5. Appraise the effect on international relations
All large businesses depend on international relations to a degree, “so the effect on international relations shouldn’t be underestimated” says Crump.
Crump thinks that it is important that we do not rest on our laurels and just assume business will continue as usual.
“What I see happening is that China is quietly blaming the US in some circles for the outbreak, calling it a deliberate attack. Likewise, the US is using this to encourage businesses to pull out of China.”
“China blaming the US feels like more of an insurance policy to deflect criticism from the regime, but still… it’s a reminder that the global network is under threat.”
So bear in mind Crump’s analysis and consider taking these five steps to limit potential supply chain difficulties resulting from the coronavirus.
What effects are you seeing on your supply chain from the coronavirus? How are you managing the risks?