Supply Chain

The Coronavirus Impact on Supply Chains

by Sundar Kamakshisundaram

By mid-March, it had become difficult to keep track of what seemed like the high-speed unravelling of the world’s economy and its means of social connection. Abrupt governmental decrees, designed to contain the rapid global spread of COVID-19, were being matched by equally unsettling private-sector decisions to cancel or postpone public events, college classes, athletic competitions, worship services, and much, much more.

For most consumers, it was a disorienting and anxious time. But for businesses of just about every type, the disruptive impact of the epidemic was something more ominous: It presented an existential threat to their survival. Retail shops and eateries everywhere saw their business drop off precipitously.

A March 11 analysis by trading platform Forex.com claimed that nearly 75% of all companies had already reported supply-chain disruptions, with more than 80% believing that at some point they would experience impacts as a result of COVID-19 disruptions. And even if an order from an overseas supplier were to be filled, delivery issues would be compounded by the declining number of air and ocean freight options to move products into the U.S.

The effective shutdown of industrial activity in Wuhan, China — ground zero for the virus – presented particularly difficult problems for manufacturing firms worldwide, many of which had come to depend on materials, components and finished goods made in China. And the severity of those impacts was only projected to grow beyond the first quarter of 2020.

“For a business to deliver its promise to its customers, it must have a properly functioning supply chain,” Goker Aydin, an expert in business analytics at the Carey Business School of Johns Hopkins University, recently observed. “Without an intact supply chain, a manufacturing business will starve for key inputs into its production process. A retailer will have empty shelves. If the disruption continues, we may see many manufacturers, and maybe even retailers, suspending their operations as they run out of the key inputs they need.”

On February 4, Hyundai Motors announced suspension of production at seven of its plants in Korea. The company, which had made significant investments in Chinese suppliers, had experienced serious disruption in its imported parts — particularly wiring harnesses, which vary from one vehicle to another depending on its features and accessories. As a result, it wasn’t practical to stockpile them. So, when its supply chain broke, the ripple effects came about quickly.

At the same time, however, there was a glimmer of good news. By mid-March, just as the incidence of coronavirus victims was growing in countries across the globe, its spread showed signs of slowing in Wuhan. It was enough to prompt Foxconn Technology Group — a huge supplier of consumer electronics with 800,000 employees — to announce that its factories in China would be running at normal pace by the end of that month.

But recovery may be fragile. “There is so much that can change from now,” according to a senior analyst at global technology research powerhouse Omdia. “A renewed outbreak somewhere else in China, then we are back to square one.… Even though it seems to be sort of under control, it doesn’t mean that it can’t flare up again.”

In the meantime, Hyundai’s supply-chain radar was able to quickly identify two South Korean wire harness makers who were looking for opportunities to increase production at their own factories in South Korea and elsewhere in Asia, to compensate for disruptions to the Chinese supply chain.

Fall in demand; cashflow shortfalls due to collection challenges; port congestion; and disruptions to air cargo, trucking and rail services, affect companies globally. The financial risk for small to medium-sized businesses (SMBs) is especially high. As cash remains tied up in finished goods, collections take longer, payments continue to increase, and for most SMBs it’s a fight for survival.

Operating in an environment marked by volatility, uncertainty, and fractured supply chains is a tremendous challenge for any corporation. But for those that have put smart procurement strategies in place, while digitizing supplier relationships, manufacturing and other aspects of business operations, it’s a situation made more manageable. Prior to the widespread introduction of commercially available digital technology, it wasn’t practical to maintain visibility into the status of a company’s supply chain, its inventory of essential materials, and possible alternative sources of supply — including information from relevant third-party data sources. Today, however, integrating and acting on vast reservoirs of information enable companies to become more agile and work around unexpected procurement disruptions.

Epidemics, along with floods, fires, hurricanes, earthquakes, political unrest, labor issues, regulatory changes, trade skirmishes and worse, are largely unpredictable. But they’re also inevitable. Armed with timely information, companies can avoid getting caught off guard and instead respond in a rapid, agile fashion to the abrupt supply challenges presented by today’s volatile business climate.

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Author

Sundar Kamakshisundaram

Global Head of Manufacturing Solutions

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