How Is the Coronavirus Impacting Supply Chains?
The novel Coronavirus is a classic black swan for 2020 — an event that is largely unforeseeable and impossible to fully mitigate. As of this writing, the virus continues to spread to new countries beyond the boundaries of China with Australia, Italy, Iran, South Korea, Japan, France, Germany, Spain, the US, and others all reporting cases. In total, there are about 92,000 total reported cases.
Beyond concerns for public health — which should obviously take precedence over any discussion — the virus has also been responsible for a significant amount of economic turmoil, causing disruptions in virtually all industries that rely on global supply chains to support their goods and services. Retail, pharmaceuticals, automotive, electronics, medical equipment, and aerospace supply chains are all currently in a state of flux as information continues to be limited regarding the scope of the outbreak.“Coronavirus continues to be front and center as a major supply chain risk to our company. Access to information in China — from our supply base and customers — is slow to come by,” one respondent said in a study conducted by the Institute for Supply Management (ISM).
Such disruptions have also taken a significant toll on the global stock market, which long term, could threaten reversing the largest and longest economic expansion seen on record. Recent stock figures, in fact, suffered the worst losses since the 2008 global financial crisis. As the Chinese government continues to keep nearly half of its population on lock down and limit the country’s ability to continue transportation and manufacturing activities, continued delays can be expected as distributors are unable to acquire sufficient quantities of parts to meet global demand.
“As the coronavirus shifts from a regional epidemic to a worldwide pandemic, supply chain issues are going to grow exponentially,” said University of New Haven Professor Patrick Gourley, Ph.D, in an article for EPS News. “Given China’s role as the world’s producer, even if the virus stays mostly contained within its borders many industries are at risk.”
It is also worth noting that the Coronavirus, while a source of disruption within itself, is not the only factor responsible for the downturn. “According to Forbes, the extension of the Lunar New Year shutdown has created a backlog in the world’s supply chain that will not be repaired for many weeks (at a minimum),” said Electronics Sourcing. “There is still a lot of uncertainty when factories will actually start up again, and what will happen when they do.” As variables compound, the manufacturers who have become dependent on the Chinese market for sourcing will continue to be strained. Component lead times, prices, and distributor inventory quantities are all expected to be affected in the immediate future.
There is, however, a silver lining. Instead of looking at this crisis solely as a mass-scale disruption, the virus also presents a generational opportunity for businesses to evaluate supply chain weaknesses. In real time, companies that operate on a global level can see what aspects of their supply chain strategy are most susceptible to disruption, and what strategies can be implemented to avoid such disruptions should future crises cause similar component sourcing challenges.