How the Coronavirus is Disrupting the Supply Chain Industry

As the world struggles to contain the outbreak of Coronavirus, those in the supply chain industry are struggling to manage the epidemic’s rapidly growing impact on their corner of the market.

Unfortunately, reports on the extent of the current pandemic are increasingly grim.

In this article we’ll explain the ways in which COVID-19, commonly known as Coronavirus, is disrupting the supply chain industry and how you can inoculate your business from the worst of its effects.

Coronavirus Supply-Chain Industry Disruptions

Data released by Resilinc, a supply-chain risk-monitoring company, shows the full extent of the COVID-19 crisis on the global supply chain - the world’s 1,000 largest companies own and/or are dependent on more than 12,000 facilities (factories, warehouses, distribution centers, etc) located within quarantined areas in China, Italy and South Korea.

As you might expect, companies most affected are those which rely heavily or solely on parts and materials sourced from factories in China where manufacturing plant activity has fallen well below normal levels.

SOURCE: Dun & Bradstreet Supply Chain Analytics (February 2, 2020)

According to data analytics firm Dun & Bradstreet, some 51,000 companies around the world have at least one direct supplier in Wuhan and more than 5 million companies utilize at least one tier-two supplier in the Wuhan region, the epicenter of the Coronavirus. That accounts for 938 of the world’s Fortune 1000 companies.

Unfortunately, by the nature of their products, these businesses have the largest potential for supply chain disruption:

• High Tech Consumer Electronics
• Apparel Manufacturing
• Automotive, Industrial, Heavy Equipment Manufacturing
• Transportation
• Retail

Among these sectors, wholesale and manufacturing account for approximately 65 percent of the businesses in the impacted region. What’s worse, Dun & Bradstreet found that 95 percent of businesses with direct impact to their supply chains are headquartered in the USA.

SOURCE: Dun & Bradstreet Supply Chain Analytics (February 2, 2020)

As COVID-19 makes it harder for manufacturers to get raw materials to their facilities, wholesalers in the affected areas are finding it difficult to get their products to their customers in the United States and Europe.

In fact, many manufacturers have been forced to delay the reopening of their facilities because so many of their workers have been otherwise detained due to strict quarantines and travel-bans enforced by the Chinese Government.

Coronavirus: Supply-Chain Industry Outlook

As the Chinese government extends its efforts to quarantine nearly half of its population -- roughly 700 million people - we can expect continuous disruption to transportation and manufacturing activities in the country. According to DBB,

“Alongside the devastating effects on human life, the outbreak is already having considerable local impact on employment, business health, and supply chain operations, with increasing implications for global business operations and supply chains”.

With no known vaccine or treatment and due to the commercial importance of the impacted region, we can also expect the epidemic to last well into 2020. Elisabeth Shaw reporting for Foreign Policy states,

“The coronavirus outbreak has shown that supply-chain disruptions could wreak far greater havoc on the global economy - and national security - than most CEOs and governments realize.... it’s likely to cause reduced manufacturing in North America and other Western countries as failing arrivals of Chinese-made components cause production delays.

How to Protect Your Supply Chain

So what can you do to insulate your supply chain from the Coronavirus epidemic? Lessons learned from the SARS and Zika epidemics tell us that companies should increase the amount of inventory they keep on hand to offset disruption to manufacturing and transportation.

Most companies have enough inventory coverage to allow them to match their supplies with demand, with no additional supply, for between two to five weeks, depending on the company’s supply chain strategy.

Any disruption longer than that will cause manufacturing to stop. Unfortunately, the impact of COVID-19 on Chinese manufacturing has already exceeded the impact of SARS and Zika by an order of magnitude. Fortunately, all is not lost yet and there are things you can do to insulate your supply chain from future epidemics and disasters.

1. Know Your Suppliers

One of the best things you can do to prevent disruption to your supply chain is to know your suppliers as well as you know your own business. Bindiya Vakil, CEO and founder of supply chain risk analysis firm Resilinc, states,

“The one thing that everybody always realizes during events [COVID-19 epidemic] like this is they don’t know enough about their suppliers… where their suppliers’ manufacturing sites are located, where the parts are stored, and where they are distributed from. These are very basic things that companies have not taken the time to find out.”

2. Build a Continuous Monitoring System

According to Vakil, ready access to supply chain data is key to managing disruption, like that caused by the Coronavirus,

“What they [companies] need to do before any event happens is to have a program in their organization to map their supply chain and inform their experts about where their supply chain mapping data resides, and to train them on how to access it in a bind.”

3. Develop a Business Continuity Plan

Develop a supply-chain disruption monitoring and response plan for operations that are located in or rely on countries impacted by the virus and potential supply chain exposure from tier 1 and below.

If any transparency is missing, develop the program and prioritize discovery to get a full picture as fast as possible. Don’t forget to assess how customer spending may be affected. Then assess your opportunities to diversify your suppliers.

4. Hire a 3PL

The coronavirus epidemic teaches us that a robust supplier-monitoring system is a basic requirement to survive in today’s global supply chain. You can try and manage all these steps and variables yourself, or you can hire a third-party logistics firm like Flowspace to assess your exposure to threats like the Coronavirus and protect you from future disruption.

Contact us today for a dose of preventative care and the expertise to not only survive this epidemic but thrive during the next one.

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