The Coronavirus is receiving a huge amount of attention from world leaders and healthcare providers. One of the less-discussed aspects of it is the impact it will have on the global supply chain. Supply chains are becoming more and more intertwined and complex. In order to improve efficiency while also getting a greater return, firms that are involved in the supply chain need to specialise in the finer parts of the process. Look at the apparel industry for example, for just one garment, the process involves various steps. You have to think about fibre production, the weaving, dying process, cutting, sewing and even finishing off. You also need to keep in mind the parts of the garment, which include buttons, zippers and more. These are often produced by other suppliers. The distribution and even logistics will engage even more people as well. In the automotive, aerospace or even electronics industry, you have a far more complex process which has an even bigger supply chain.
Firms who have developed a level of expertise in specialised parts of the process might also play a role in providing parts to companies who then interact with the consumer. Once upon a time, the supply chain was a pyramid, where the bottom of the pyramid represented the raw materials and the top represented the customer. Now, on the other hand, chains are so intertwined with one another, that this is no longer the case. In this day and age, you have the consumer on one side, the supplier on another and then an endless chain of connections between them.
Loss of Visibility
When you look at this level of complexity, you will soon find that firms have lost transparency and that they have also lost a level of visibility. Global shocks really do document this well. Look at the 2011 flood that happened in Thailand. It might have only attracted a limited level of attention in the media but it had a huge impact on the supply chain. The magnitude of the effects reduced the supply of hard drives all over the world by around 30% and it even caused major companies such as Honda to cut the amount of production they had as well. This all came down to shortages. It was only then where companies realised that their components, whether it’s one way or another, were ultimately sourced from Thailand.
China and the Global Supply Chain
China is a huge player when you look at the global impact. It’s hard to think about how many goods don’t actually pass through this huge, global network. It’s advanced when it comes to manufacturing and it is very sophisticated. Closure of any facility in China would have far-reaching consequences when you look at the supply chain overall. Lean supply chains are also very fragile. The disruption in China would affect supply chains and it would also affect those who are reliant on speed. This is especially the case when you look at aeroplanes. On the flip side, it would also affect container ships as well. Supply chains would not feel the impact immediately as shortages that are later down the supply chain would take a matter of weeks to emerge. Forecasting is helpful here, but not always a perfect solution.
To demonstrate the issues when it comes to supply chain complexity, managers need to try and find out what companies operate in the area of Wuhan and they also need to ask themselves, are they a part of your supply chain? The answer in most instances would be “I’m not sure”. When you look at COVID-19- you will soon find that there is an entirely new level of impact- and that comes down to the movement of employees. The impact took place around Chinese New Year and a lot of the employees who work at various other manufacturing hubs, including Shenzhen and Guangdong live in Wuhan or even any of the other quarantined areas. As a result, it looks like manufacturing is slowing down in other parts of China. The consequences of this are certainly far-reaching.
Impacts of this disruption are being felt already. Some companies are closed or choosing to slow down their operations. Companies such as Toyota, Volkswagen and even General Motors are currently being affected. Firms across the world are now seeing even bigger effects. Hyundai, for example, were one of the very first automotive firms out of China to halt their production.
Rethinking the Supply Chain
It would appear that the Coronavirus is actually the Black Swan of the entire generation. The duration of the disruption can easily determine what comes next. In anticipation for Brexit, some companies have filled their pipelines with inventory. Companies can cruise quite easily in this position and if the virus does subside in the next coming weeks then everything will probably go back to normal. A longer disruption may well result in price hikes, shortages and firms re-thinking their supply chains. Companies will need to think into the future while also considering their own supply chain practice. They also need to work hard to try and seek out a level of transparency, while analysing their lean manufacturing, supply chain resilience and dual sourcing. Companies have to make sure that they consider the “what if” scenario and they also need to plan out what they would do, should they end up losing 50% of their product, or 50% of their workforce for weeks on end.
The overall magnitude of the impact and how this is going to affect your supply chain will depend on who you are and where in the world you are and it is changing daily. When this piece was first drafted, experts expected forecasted a peak of the virus to be late March. Since then it has evolved into a pandemic that some experts are is predicted to peak in May. Others point to the prediction of a global peak next winter after, the virus dies down over the summer months. How can any business realistically expect to adapt to challenges like this?
One answer is for business to invest in the right tools to enable them to make key decisions quickly, with actionable data to support the decisions and back them up. Put simply; if you can perform, ‘what if analysis’ to establish the impact on your connected supply chain – you are in a stronger position than your competitors that cannot.
For example, if you have limited stock available, how do you decide who to allocate it to?
Do you send it to the major grocer who will fine you for non- delivery if you do not? Or do you take the fine, confident in the knowledge that you can make more money sending the stock to a customer who returns you a higher profit margin?
We are all sailing in choppy waters in these uncertain times, but if Darwin knew anything, those that adapt and react collaboratively with their supply chain will come out the other side of this in the best shape.