Authored by Sandeep Patel, Co-Founder & Managing Partner of Veridian.

With the holidays over and 2020 underway, one of the biggest challenges facing today’s supply chain is the current public health scare and its associated disruption in the supply chain. The coronavirus, now officially named COVID-19 by the World Health Organization (WHO), is a “global-public-health-emergency” that originated in Wuhan, China in late December 2019. While on the surface, a medical health crisis doesn’t intuitively link with supply chain execution. However, with China’s place in the global economy, supply chain leaders must not avoid the meaningful and long-lasting impacts of the coronavirus. 

Supply chain visibility is essential to getting ahead and keeping the risks of the coronavirus at bay. Supply chain leaders need to know the real risks, identify its effects, and understand the necessary steps to take to minimize their disruption in the supply chain.  

What’s the Real Risk to the Chinese Supply Chain? 

China has a $14 TRILLION economy. It has also become the center of global production networks in any number of key industries including electronics, automobiles, medical equipment, industrial machinery, and pharmaceuticals. In fact, 80% of the raw materials used by American drug companies to make generic drugs come from China. 

Although not as sizable as other Chinese cities, Wuhan has more than 11 million people, making it considerably larger than New York City. More than 300 of the world’s 500 largest companies have a presence in Wuhan, with the city being one of China’s largest manufacturing centers. Currently, it is under a quarantine lockdown in an attempt to limit the spread of the virus.  

One of the many reasons that Wuhan is critical to the international supply chain is due to its role in shipping and transportation. As of today, Chinese authorities shut down transportation for more than a dozen cities, effectively putting nearly 60 million people under severe travel restrictions. With China serving as one of the major manufacturing hubs of the world, this mass quarantine is having worldwide impacts. 

Supply Chain Management Review notes a further fact that goes beyond the Wuhan-specific stories of the media: 

“In reaction to the virus, the government of China has effectively quarantined Wuhan as well as at least 18 other cities, putting travel restrictions in place that are impacting an estimated 56 million people.” 

What Are the Current Effects of the Coronavirus in Supply Chain Verticals? 

Many have compared this outbreak to the SARS emergency of 2003. However, the impact now on automotive and electronics components in China from the coronavirus outbreak is expected to surpass that which occurred during the SARS outbreak. Part of the reason is that the world’s second-largest economy has now become a much bigger manufacturing hub for both the electronics and automotive industries.  

In the realm of electronics, one of the most prominent companies feeling the challenges is Apple. Apple is currently dominating the news headlines here in the US due to shortages of iPhone parts. On the automotive front, Wuhan is an automotive hub with a 48% share of manufacturing for companies like Honda and General Motors. In addition to the quarantines and government regulations, the impact of the coronavirus to the supply chain space includes labor shortages, sourcing and travel restrictions, and limited or no means of transportation, all of which are greatly disrupting the consumer experience.  

Several automakers and auto parts suppliers have warned that factories in Europe and the United States are just weeks away from being forced to close due to the turmoil caused by the outbreak. Carmakers in Germany, which make the majority of their profits in China, have announced the temporary closures of their manufacturing plants in the country, as have many large car-parts suppliers. Meanwhile, Japanese carmaker Nissan is considering extending a shutdown of its operations in China, in line with other carmakers including Toyota, Honda, and Ford. 

How to Get Ahead of Both D2C and B2B Consumers’ Coronavirus Fears 

Regardless of whether your supply chain services other businesses (B2B) or sends products directly to consumers (D2C), you need to take the first steps to reduce the disruption risk caused by the coronavirus. These steps include: 

1. Reassure customers of the safety of products manufactured in the region, highlighting steps taken by the manufacturers to lower the risk of transmission or contamination.  
2. Consider the impacts of sourcing critical products from a single region in the world; situations like this remind us all that cost per unit should not be the only consideration when determining product sources. 
3. Evaluate suppliers affected by the outbreak and consider non-Wuhan suppliers.  
4. Review available inventory now to make timely reordering decisions for non-perishable products.  
5. Start thinking about the impact of an air travel/shipping ban from China to the U.S. (a travel ban from Wuhan is already in place). 
6. Revisit product safety on your website social media. 
7. Make plans as if this outbreak will last longer than a single traditional flu season. The 1918 influenza pandemic took 23 months to run its course. 
8. Realize this outbreak will come to an end, and make long-term sourcing plans knowing that other outbreaks are certain to occur in the future. 

Keep Your Supply Chain Running Despite the Coronavirus With the Right Strategy 

Regardless of industry, the biggest concern for businesses is that consumers change purchasing habits due to fear of exposure, again challenging logistic networks. The risk for disruption in the supply chain is here, and no one really knows what will happen with the coronavirus. All of these consequences continue to highlight the need to have a smart and adaptive supply chain that can handle even the most novel of problems. Utilize technology to aid your supply chain in hedging against any disruptions. Reach out to Veridian for a consultation today to get your supply chain systems ready.