This blog post was published 12 February 2020, based on information available at that time.
China is the global hub of exports, as the only country in the world with more than 10% of merchandise exports. China is also one of the world’s fastest moving governments, building a hospital in 10 days with a Communist Party network that implements new directives … fast!
What happens when a virus emerges, and Xi Jinping warns that it is a “grave situation?” Everyone’s first priority is obviously human health, and the speed of mobilization to treat and prevent further spread is impressive – we hope this goes well. Closer to home, can your supply chain adapt to this type of a shock? What's the impact on your supply chain?
The World Health Organization (WHO) has praised “China’s speed, China’s scale, and China’s efficiency;” it has shut down cities the size of Paris or London, rapidly developed diagnostics and extended the biggest holiday of the year – the Chinese New Year. Imagine Christmas lasting until January 10th then factor in a 14-day quarantine, with some cities likely extending further holidays. To add to this, many people across China will have gone to their family homes, so companies in ‘open’ places may still have labor, parts and other shortages.
Many manufacturing companies have sprung into action, asking for stock levels and exposure analysis two or three tiers down in their supply chains. Even if stock is available, logistics is also becoming a challenge, with air, rail and ocean cargo showing signs of strain according to supply chain drive. Additionally, goods that you might not have anticipated are shifting – your suppliers being local may not be enough. As buffer stocks built up to account for reduced production over Chinese New Year run down, manufacturers or capital equipment purchasers across Europe will start to see the impact of Coronavirus on their business.
Mitigate the risks
The best procurement advice for companies is the same as the best advice to individuals: practice good hygiene. For individuals, this means washing your hands often, covering coughs and self-isolating if you’ve been to impacted areas. For procurement, the list is similarly familiar: know your suppliers – both on spend and segmenting for business criticality – and keep information flowing through performance management or forecasting. Additionally, have second sources warm in the event of prolonged disruption, particularly if dual supply is planned for a different region as part of your category strategy. Be honest and pragmatic about impacts – for example, we have had several consultants working from home for a period. Keep on top of the latest news, using both news articles and procurement focused research like Beroe’s blogs.
As the exponential growth of the Coronavirus continues, consider taking some time to plan for something medium-term – much like the 8-month duration of the SARS episode – and identify issues that might emerge. The electronics supply chain has become very adept at keeping security of supply, particularly if volumes, security stock or other contractual agreements have been committed. But can it manage if the restrictions last 8-16 weeks? You may have a globally mobile team, or events planned in China – both Formula One and the Olympics are rumored to be facing disruption. How might that impact your sales, technical support or supplier qualification program? It may be time to launch rapid sourcing for key categories to provide backup solutions, as others in the market may already be doing.
We’ve seen the government of the most populous country in the world spring into action. Have you got the expertise, insights and technology to do the same?
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