The Chinese government confirmed on January 7, 2020 that they had identified a new virus “Coronavirus,” now called COVID-19. It proliferated across a vast region in China; nowadays, it is worldwide. Given that it is a viral disease and that there is an exponential factor, it has gone uncontrollable; antibiotics are NOT advised, and there is no vaccine found so far; we are talking about months to get through it.
Authorities have taken rigorous measures to stop people from entering or leaving their country. Families were confined to their homes, bus/taxi services were shut, and only essential stores were allowed to remain open. Flights are being sent to bring citizens abroad back to their countries, cruise-ships had to stay at sea due to the closing of ports. Convention centres and hotels turn into temporary hospitals; governments are calling for a quarantine for Coronavirus hotspots to decrease the spread of the pandemic.
The Coronavirus and the Supply Chain
The global Supply Chain (SC) is profoundly disrupted. You cannot forecast the escalation of a pandemic like this, but you can get your SC ready to have more choices when disruption hits.
The Chinese economy is impacting the global economy as well, as numerous enterprises around the world are China commercial partners. As the virus persists, companies have clearly understood the underlying-SC disorder the COVID-19 represents, the alternatives they might have, and the short-term actions to take to prevent customer disruption; therefore, it's all about being ready and proving the agility to respond promptly.
Economy areas affected by COVID-19
The threat to global SCs
Complex SCs that broadly depend on Chinese-produced components or sub-assemblies often comprise essential parts from impacted areas; from LCD panels, textiles, clothing, digital tech and much more.
The shutdown of Production Lines
Automotive manufacturing has already been interrupted mainly in China, Korea, Germany and Japan. A USA automotive manufacturer alerts that the production of trucks might have to stop due to parts shortages, or possible closing factories in other parts of the world. Apple has informed disruptions caused by Coronavirus that are affecting sales and the forecast of revenue.
Reduction in consumer and industrial demand
Businesses are expecting a decline in industrial and consumer demand, as supplies are focused on controlling the epidemic. The current effects in China and many other countries can be felt due to businesses remaining closed, consumers still staying at home, and the need for remote work.
Supply shortages due to disruption of level 1 and 2 suppliers
There is a significant risk of supply shortages because numerous suppliers are located in regions impacted by the pandemic. Studies on possible impacts bring to light that thousands of American businesses have suppliers in-crisis-areas of China, as numerous global companies do too.
Reduction in global Gross Domestic Product (GDP)
Global economy anticipates for even harmful consequences as the virus ranging to other regions will cost the world economy trillions in lost income and will hinder global growth for 2020.
Drop-in oil prices
Oil prices dropped sharply in the first quarter of 2020. Prices are not expected to grow much while demand remains low, especially as China's restrictions on travel remain.
Any disruption in the supply of Chinese pharmaceutical ingredients could hit many countries like the USA that has a well-defined dependence on active ingredients produced in China.
A significant drop in international tourism
As Coronavirus is on the rise, there will be a complete collapse in tourist travelling to regions affected by the pandemic around the globe, since flights, trains or cruse-ships into and out countries are cancelled. Even if it is contained, it is expected that the travel industry will lose billions in 2020, and the coming years.
The economic wave effects
The industrial wave effects go further than China, with SC disruptions upsetting numerous businesses globally. The sports sphere has gone through this crisis too. Olympic Games were cancelled or postponed affecting athletes who were pressed to cancel attendance, and organisers who are losing considerable amounts.
Risk of a Bullwhip Reaction
Customer demands will drop, triggering off the reduction of inventory, the manufacturing processes will slow down, and so on, consequences cascading onto every layer of the SC. When sooner or later demands come back, the reverse outcomes occur. It is known as a Supply-Chain Bullwhip, in which fluctuations put tension on suppliers, and could cause many enterprises to withdraw business.
How should companies transform this situation to their advantage?
- To protect our workforce by implementing home-office or remote-work, and focusing on the development of the team whilst enhancing collaboration.
- To cut manufacturing lines.
- To enhance online sales.
- To deliver products directly to customers.
- To implement additional cuts, aim to avoid job loss.
- To map the flow of supply-base to grasp company effects.
- To plan for the unpredictable.
- Incorporation of suppliers on planning.
- To build worst-case-scenario for planning and mitigation.
- The comprehension of geographical-flow of products, knowing countries and ports destination to monitor SCs.
SUMMING UP: those businesses with effective-SC-resilience approach will be all-set for such kind of disruptions. If not counting on it, soon they would be impacting the bottom-line of the business. The main point is to comprehend your SC entirely and have a precise mapping of it to rely on a better concept of the risk organisations are facing.
Businesses can turn the Covid-19 outbreak into an opportunity by building a relationship among the company and its workforce, strengthening their business culture to become reciprocally constructive.