- CCPS Risk-Based Process Safety (RBPS) 08 - 12 Aug 2021
- Gas Turbine & Compressors 08 - 12 Aug 2021
- Building Collaborative Business Models for Innovation and Competitiveness 08 - 12 Aug 2021
- Writing Effective Legal Documents and Commercial Contracts - A Practical Workshop 09 - 13 Aug 2021
- The Art of Strategic Management 09 - 13 Aug 2021
- Strategic Planning Specialist 09 - 13 Aug 2021
- The Art of Strategic Management and Leadership 09 - 20 Aug 2021
- Leadership and Management Skills for the 21st Century 09 - 20 Aug 2021
- Managing and Leading Innovation 09 - 13 Aug 2021
- Pensions Management 09 - 13 Aug 2021
- Advanced Warehouse Management,Warehousing Performance Measures,Storage Control & Safety 15 - 19 Aug 2021
- Strategic Marketing: Planning, Development & Implementation 15 - 19 Aug 2021
- Variable Frequency Drives (VFDs) 15 - 19 Aug 2021
- Audit Sampling: From Engagement Planning to Execution 15 - 19 Aug 2021
- Waste Management 15 - 19 Aug 2021
- Professional English Language for Executive Management 15 - 19 Aug 2021
- Accounting & Finance for Non-Financial Professionals 15 - 19 Aug 2021
- Transformational Leadership Post COVID-19 15 - 19 Aug 2021
- Advanced Maintenance Management 16 - 20 Aug 2021
- Upstream Petroleum Cost Trends and Benchmarking 16 - 20 Aug 2021
Coronavirus – A Wake-up Call for Supply Management professionals?
March 5, 2020
With dramatic pictures filling our TV screens of Chinese cities in lockdown, factories closed, and cruise ships becoming no-go zones, it’s not difficult to detect a growing sense of global panic about the epidemic officially known as novel coronavirus 2019-nCov. But what is the impact for business – and, in particular, the management of supply chains from this new contagion? And what lessons should supply chain and procurement directors be learning from the personal tragedy that is unfolding before our eyes?
Coronavirus was first reported by China on 31 December 2019, and, on 30 January 2020, the World Health Organisation declared the situation as a Public Health Emergency of International Concern (PHEIC).
The figures associated with this previously unknown disease are staggering. According to the John Hopkins University Center for Systems Science Engineering, coronavirus has, at the time of writing, killed more than 1,000 and infected 43,000 people. About 10% of those who have caught the virus have recovered – but 2.3% of victims have died.
Currently, the disease is focused in China: 99% of the infections have been in mainland China – and most of those in Hubei province, around the city of Wuhan – but cases have been found in 26 other countries.
The consequences – at least in China – have been dramatic. According to the US State Department, “Most commercial air carriers have reduced or suspended routes to and from China … the Chinese authorities have suspended air, road, and rail travel in the area around Wuhan and placed restrictions on travel and other activities throughout the country…”. China has become an enormous isolation zone, with empty city streets, and residents ordered to stay at home to contain the spread of infection. Factories and offices have remained shut after the compulsory extension of the Chinese Lunar New Year holiday to reduce the movement of people.
With Chinese citizens unable to travel, many countries will already be feeling the economic impact of China’s isolation. On a trip to the US, a Chinese tourist (and there were 3 million in 2018) typically spend $6700 – 50% more than an average foreign visitor, according to the US Travel Association. But Chinese tourism spending in 2019 was already down by about 5%, because of the US-China trade war, and the tightening economy in China. What will be the reduction in 2020 to overseas visitor numbers, if Chinese tourists have less money to spend while their offices or factories were closed for an extended period?
With Chinese economic activity reduced, another immediate effect has been seen in the global oil industry. China is a big importer of oil and gas and, according to the Financial Times “Oil demand in China is estimated to have fallen by as much as a quarter in February, as big cities have been quarantined, flights cancelled and public holidays extended to try to contain the spread of the virus”.
Looking at the supply side of the supply-demand equation, we can also see immediate damage being caused to industries relying on just-in-time delivery (JIT) from Chinese factories. JIT involves manufacturers reducing their warehouse inventory levels and relying on suppliers to deliver stock components a short time before they are required on an assembly line.
Car manufacturing is feeling the JIT supply pain right now (although other sectors such as aircraft manufacture are also exposed). Car makers strictly speaking make very little themselves – they assemble components delivered by an ecosystem of suppliers and sub-suppliers who have long term supply contracts. Retail customer demand for individually tailored cars ‘pulls’ the supply of product in a highly efficient and organised way all the way to the car plant: and products are expected to be of flawless quality to enable continuous car production – a technique developed originally by Toyota. Right now, not many cars are being bought in Wuhan.
Car plants in China have already shut down, including those run by Tesla, Nissan, and Ford. Hyundai Motors, the world’s 5th largest car manufacturer by sales, announced on 4 February that it would temporarily close its factories in South Korea, because of shortages of components from China. It has so far been unable to source parts from alternative, non-Chinese suppliers.
Car parts makers with factories in China, such as Continental, which has 50 manufacturing plants in the country, are assessing how to handle the supply challenge. Continental makes braking systems, sensors, display units, and many other products and is said to be hoping to re-open its Chinese factories soon – but needs government authorisation to do so.
Right now, any industry, anywhere in the world, that is dependent on Chinese manufacturing will be trying to second guess the future: how long will the coronavirus crisis last? How long will those Chinese factories stay closed? Where can we source alternative products before our production also has to stop?
But beyond the crisis, however long it lasts, manufacturers will have to reconfigure their supply chains and consider a range of options to mitigate the future risk of supply shortages. They will need to answer questions like:
- How much stock – and what stock – should we be carrying to act as a buffer in the event of breakdowns in our supply chains – even though carrying inventory leads to waste and has a capital cost to the company?
- How can we diversify our supply chains so that we can multi-source from suppliers who themselves diversify their own suppliers?
- Is our dependence on sourcing from a handful of key suppliers creating too great a business risk – should we instead make more of our own components?
The coronavirus is, without doubt, a personal tragedy for individuals who have the misfortune to catch the disease, and for their families. But to companies and businesses, it should act as a wake-up call to rethink how to structure their supply chains.
EuroMaTech offers a wide range of training courses & seminars covering the supply chain and risk management aspects.
Check out our courses for 2020 at www.euromatech.com/training-plan-2020.
EuroMaTech is a leading training & management consultancy offering
training solutions that focus on enabling clients to improve their skills and
potential, to progressively achieve organisational outcomes. With a high
emphasis on quality, we support our clients’ training needs across a wide
range of industries to meet industry best practices and create value
addition. Our program categories include topics on: Administration
Finance & Budgeting, Customer &
Public Relations, HR
Process Engineering, Projects, Contracts &
Masterclass. With headquarters in Liverpool, UK and offices in Dubai and
Abu Dhabi, EuroMaTech deliver courses in worldwide venues including
Training Courses in Abu Dhabi , Training
in Amsterdam , Training
Courses in Bali ,
Training Courses in Bangkok , Training Courses
Training Courses in Brighton,
Training Courses in Brussels, Training Courses
in Berlin , Training Courses in Chicago ,
Training Courses in Colombo ,
Training Courses in Copenhagen , Training
Courses in Dubai , Training
Courses in Geneva , Training Courses in Georgia , Training Courses in
Jeddah , Training Courses in
Kuala Lumpur , Training Courses in London ,
Training Courses in Marrakech , Training
Muscat , Training Courses in Los
Angeles , Training
Courses in Orlando , Training Courses in Riyadh , Training Courses in Singapore , Training
Courses in St. Petersburg , Training
Courses in Sydney , Training Courses in Vancouver ,
Training Courses in Vienna , Training Courses
in Washington , and Training Courses in Zurich.
Join us on LinkedIn, Facebook , Twitter , Google+, YouTube & Instagram and make a professional presence online.