As the WHO speaks of a pandemic, the alarmism and uncertainty surrounding the coronavirus is increasing. Each new report barely offers clues as to what measures are best to take. It does force companies to think about the robustness of their supply chain
Wuhan, which was the first city to be truly gripped by the virus, is a centre of the steel industry. It is the centre of companies like Nissan, Honda but also IBM, Honeywell. The city of 11 million inhabitants is a dominant point in many supply chains. Not for nothing did international business immediately hold its heart when the city went into lockdown. Components in many supply chains - from manufacturing, assembly to finishing - pass through or originate in this city.
Now, supply chains can often cope with stronger fluctuations through stockpiling in the chain, but the problem is the unpredictability of the spread and duration of the epidemic (now even pandemic). And this outbreak in China is further complicated by Trump's ongoing trade war against China.
Since Trump started his trade war, many companies have already taken the first steps to move their production sites to countries like Indonesia or the Philippines. But given the rapid and widespread spread, this will provide limited relief.
One of the lessons to be learned from epidemics are the different phases a country is in and the fact that, depending on the distance from the source, other countries are in a different phase.
Because of this shift, one country may still be functioning well while another is in lockdown. Depending on the durations, this picture can reverse. As seen now, China is slowly recovering and becoming operational again, while Europe is waiting out the worst effects.
The other effect to consider is the reaction of consumers. Will they start hoarding? If so, your supply chain inventory will be drained - or will a drop in demand occur? Again, this reaction can vary from one infected region to another, depending on the phase of the epidemic/pandemic.
This outbreak should once again be a clear wake-up call for supply chain professionals to ensure a good international spread of sourcing and manufacturing locations. Not only to stay ahead of epidemics, but also the natural disasters we have also seen in recent years. And which will increase in severity in the coming years partly due to climate change.
Author: Hans Groen - Advisor Supply Chain and Performance Management
