With outbreaks now reported in Italy, Iran, and South Korea as well as in China, coronavirus, or Covid-19, is continuing to trouble many companies' global supply chains. Speaking today at the Retail Industry Leaders Association (RILA) LINK2020 supply chain conference, David Shillingford, chairman of the data and analytics company Resilience360, outlined possible near- and long-term impacts and best practices going forward.
Speaking before a packed room of approximately 175 supply chain professionals, Shillingford said that the potential global economic impact of the virus will be significant. The SARS (severe acute respiratory syndrome) outbreak in China in 2002, for example, had a $40 billion impact on the economy. Shillingford believes that Covid-19 will have an even greater impact as the role China plays in the global economy has grown from 4% in 2002 to 16% today. Bankruptcies caused by the outbreak have already happened and will continue to happen, he says.
Demand patterns will be significantly affected by the virus, warns Shillingford. There has been a strong drop off in Chinese consumer demand, particularly for luxury goods, since the outbreak. At the same time, there has been a dramatic shift in online purchases of consumer goods. For example, the purchase of home hygiene goods online has increased by 150 percent in China.
Meanwhile, factory, port, and border crossing closures have taken a toll on the supply chain side of the equation. Even companies that do not have manufacturing facilities in China are feeling the disruptive effects as raw materials that they rely on are trapped in China. For example, Shillingford estimates that 90 percent of factories in Bangledash rely on raw materials from China.
One of the most challenging aspects to managing the outbreak has been the uncertainty. For example, some factories in China that had been on lockdown due to quarantines have been opened again as the virus is contained, and only to be then locked down again for failure to comply regulatory requirements. Furthermore, lockdowns and force majeure certifications that release companies from fulfilling a contractual duty due to an "act of god" are being handled at the local level, making them hard to track.
Shillingford advised attendees to be aware that other large socioeconomic factors may determine how well an area is able to respond and recover from the virus. For example, migrant workers make up a large proportion of the workforce in China. Many of these workers returned to their home region for the Lunar New Year and now are unable or unwilling to return. So even if a factory or port is open, there is a question of whether there is someone there who can do the work.
How to Respond
Shillingford provided some advice for how companies can respond the threat:
1. Talk to your procurement team: Your procurement team should have a firm idea of where your suppliers are and how they may be affected.
2. Map your supply chain: Knowing who and where your suppliers are (and who and where their supplier are) will help you better anticipate risks and disruptions.
3. Reach out to suppliers: If you haven't done so already, it's time to reach out to your suppliers and find out how they are being affected.
4. Seek out and use sources of demand data that go beyond historical demand, as demand will be very different from historical patterns.
5. Start embedding risk management practices in your supply chain operations. Shillingford sees a day when supply chain risk management departments and roles will no longer be separate from supply chain management but will be incorporated into the responsibilities and roles of all supply chain departments and positions.
6. Wash your hands. It sounds glib, but it's most important that you take care of yourself, your team, and your internal and external partners.
Finally, Shillingford encouraged attendees to collaborate not only with their supply chain partners but also competitors.
"There's a ton that can be done as a group," Shillingford said. "Of course, there is going to be competitive elements, but we are better when we work as an industry or multiple industries."
More information and advice on the coronavirus outbreak by Resilience360 can be found in the following reports: