When coronavirus slows global supply chains, what’s your backup plan?
Any time an epidemic spreads the way the coronavirus has, containment and treatment are the most pressing concerns. At the same time, there’s an economic ripple effect that’s already starting to reach our shores. And notable economists expect those ripples to grow into tidal waves.
The Dow’s tumble last week marked the worst single-day loss in its 124-year history. It was a jarring reflection of the growing concern for how extensively the coronavirus outbreak will upend global supply chains. As economist Gary Schilling told the New York Post, “No one understands supply chains until one of the links breaks.”
Now companies are scrambling for a Plan B—or even Plan C—to mitigate the effects of an imminent global supply chain disruption.
Supply chain disruption in slow-motion
As the world’s largest exporter, China is the go-to supplier for an enormous range of products and components—everything from electronics to pharmaceuticals. When the trade war between the US and China first flared in 2018, it was a wake-up call for a number of industries.
Rosemary Coates, president of boutique supply chain consultancy Blue Silk Consulting, has been working with many companies in those industries to develop tariff strategies. The coronavirus epidemic, however, will catch many more off-guard.
“There were already a lot of companies that were looking at alternative sources and alternative ideas,” Coates commented in an interview with Business Talent Group. “But there are a lot that haven’t, and now they’re going to [hurt] because they don’t have any alternatives.”
The outbreak occurred during the Lunar New Year break in China, which helped delay the immediate effects of a supply chain slowdown. Ocean freight already has a built-in lag, and importers plan for additional delays around the annual holiday.
Following the holiday, however, factories were slow to restart, as fears of further quarantines spread and travel bans made it difficult for workers to return to their jobs. The FDA also suspended facility inspections in China, further disrupting exports of critical drug components, medical products, and food.
Thus it is only now, a couple of months after the epidemic began, that we are starting to feel the rumblings of supply chain disruption.
“Some companies are trying to source parts to stock up on inventory, to try to outlast this critical virus period,” Coates pointed out. “This, in turn, will eventually cause shortages of all kinds as companies pay premium prices and hoard parts.”
How to secure your supply chain
It’s true that you can’t control health epidemics, trade wars, extreme weather, or a million other factors that affect global supply chains. But what you can do is position yourself to be more resilient, regardless of what crisis arises.
If you don’t already have a Plan B in place, Coates warned, it’s going to be a challenging year. However, she also suggested some steps you can take right now to assess the situation and start securing your supply chain:
- Identify which products you—or your distributors—are sourcing exclusively from China
- Rank those by critical importance
- Look for alternative suppliers or opportunities to move production elsewhere
The steps themselves may seem simple, but the strategic underpinnings are often where businesses can use assistance, particularly if there’s a gap in global supply chain expertise or a lack of resources because they’re already in crisis mode. This is an area where independent supply chain experts can step in to provide necessary support and strategic guidance.
“This is not easy,” Coates said. “It’s complicated and takes time.”
Now is the time to plan for later
The coronavirus epidemic is a reminder of how fragile our global supply chain is. Nearly a quarter of U.S. imports come from China, totaling $539.5 billion in 2018. Worldwide, the republic exported $2.49 trillion worth of goods in 2018.
“Pretty much every product has some parts that are sourced in China,” Coates said. “About 90% of the world’s electronics comes from the Pearl River Delta, right outside of Hong Kong. I saw a headline the other day that said ‘You can’t make a car with only 99% of the parts,’ which really is the way you have to think about it. Even if you have only one part coming from China, you may be vulnerable.”
SARS, MERS, and the US-China trade war were all warning shots, and some businesses were fortunate to dodge those bullets. Economists and experts warn that the effects of the coronavirus will reach much further and have much longer-lasting effects. If you didn’t take heed before, now’s the time to get serious about shoring up your supply chain.
“We’ve been encouraging companies to start developing alternative sources for a while since the tariffs went into effect, and now with the coronavirus, it just magnifies the urgent need to do that, to have alternative plans and sources around the world,” Coates said in a recent interview with TechTarget.
Preparing for the future means making sure you have a backup plan in place before a crisis occurs—something Coates says a surprising number of businesses fail to do. It can help to bring in an independent consultant to help with planning and to think through alternative strategies such as:
- Risk-management planning
- Sales and operations planning
- Finding and qualifying secondary and tertiary sources
- Relocating production facilities
Business Talent Group connects companies with experts like Coates to help strengthen supply chain strategies and prepare for whatever crisis might come next. Independent consultants can step in and assist when you need it, then step back once you’re on track. The businesses that put the right strategy in place now are the ones that will not only be able to weather world crises, but ultimately also come out on top.
About the AuthorMore Content by Emily Slayton