The COVID-19 coronavirus has begun to have a significant impact on international trade, the global market, and the supply chain of many companies. Many sources propose that the impact is still largely yet to be felt, and the worst of it may hit very soon. Amid the challenges and unanticipated turns there are proactive actions companies can take. Above all there are many marked improvements in the supply chain since this pandemic began, and most companies have contingency plans in place to weather this uncertain time.
Below are some facts about the ways COVID-19 has already impacted companies’ supply chains, and actions companies can take right now. If you’re curious about how the origins of the virus or how it spread, this CNET article provides a great outline.
Manufacturing in China is Slow
The shut down and slow ramp-up of manufacturing plants in China is the largest factor that has disrupted the global supply chain. Innumerable companies depend greatly on China’s manufacturing plants to produce components and parts for their products. Companies that rely heavily or solely on factories in China for their parts and materials have been affected the most so far, and will likely see the longest lead times as manufacturing comes back online. Some companies have already announced reduced inventory in distribution, or halted operations because they don’t have all the parts needed to continue production.
For some companies, the silver lining may be that this epidemic hit during Chinese New Year, a time when many companies already plan to hold more inventory than usual, both WIP (work in progress) and finished goods. Since Chinese manufacturers always shut down during the holiday, companies that planned for buffer inventory may have bought themselves at least a few precious weeks which could be significant as supply chains recover.
What You can do Right Now: Plan for the Worst, Hope for the Best
Don’t wait to create a plan for your business. Run potential outages reports and think through alternative solutions for material limitations. There may be widespread shortages of common parts and components for an extended period because it appears these sub-tier manufacturers are taking longer to become operational. Build in longer lead times as you plan your inventory strategy—maybe for the full year—because even when manufacturing is back to normal, contract manufacturers (CM) will try to run their factories at very high utilization levels as they strive to get caught up, and there can always be new bottlenecks. Be prepared to adapt and plan for unforeseen challenges, now and for months to come. Throughout all of this, try to strike a healthy balance of preparedness and skepticism.
Kellie Lefaive, President of Go Direct says, “This is a challenging situation. On top of the obvious health and safety concerns around the virus our clients are faced with a complex set of evolving conditions. The most important advice we can offer to our clients is: have a plan! While it is unrealistic to avoid all unforeseen events as this continues on its global spread, a solid plan will provide you with the guardrails to anticipate and mitigate risks within your control:
- Update intelligence on a daily basis and continually reframe your understanding of what’s happening and act accordingly.
- Attempt to stabilize supply chains by using safety stocks and or alternative sources to ensure your product is available.
- Work with trusted fulfillment partners to solve bottlenecks and make sure your product is accessible to consumers when and where they choose to engage with your brand."
An Unclear Timeline and Unforeseen Consequences
What is known is the number of people reported to have the COVID-19 coronavirus in China has already surpassed the numbers of those affected by previous virus epidemics, such as SARS and MERS. The true impact is still yet to be seen, which means trade and global markets will be affected for a long time, companies may feel this in various ways for more than a year.
No one can predict how long operations in China will be stifled, where new outbreaks may happen and incur more shutdowns, or where the ripples will affect other parts of the supply chain. Ports are beginning to see a significant drop in activity, and the number of people with COVID-19 in countries outside of China is steadily increasing.
One positive note is reports have shown a decreasing number of new cases of the virus in Chinese province where it was first reported. This could mean that some production may be back online within the month—for example, Foxconn reported they expect their China plants will be running at full seasonal capacity by late March.
What You can do Right Now: Take Care of Your People
Take the cautious route and protect your employees, customers, and personnel. A few large cities have banned large public gatherings, and many big events have been postponed: Coachella, F8, SXSW, Ireland’s St. Patrick’s Day parade, among many others. You can ask your employees to work from home if possible. The DCL warehouse staff are encouraged to stay home if they feel sick.
Ask your supply chain partners about the preventive measures they are taking to minimize the coronavirus risks to their business. Additionally, ask for a business continuity plan in the unlikely event one of their facilities closes. It’s important to understand the gaps and weaknesses in your supply chain so you can plan accordingly.
President of DCL Logistics, Dave Tu says, “Our facilities are all still open and fully functional, and we are continuing to support our clients with all of their logistics needs. The steps we have taken to protect our business include: prioritizing our employee’s wellness so that they are able to support our customers; increasing our cleaning and disinfecting procedures; and closely monitoring the international travel of employees and visitors to our facilities. We are working closely with transportation carriers and other partners to monitor any additional impact to our clients’ business. We have seen a lot in our 40 years of operations, and we believe we have the tools to help our clients through this challenging and uncertain time.”
Potential Market Fluctuations and Product Irregularities
Big companies have been affected in multiple ways, but some have growing fears that the long-term effects of this will be decreased customer demand and generalized economic depression. For smaller companies, growing sales and demand is already a challenge in healthy economic times. Some industry experts suggest if your product demand is centralized in a largely affected area of the world, it’s time to diversify your customer base; and the same concept applies to your suppliers.
What you can do Right Now: Communicate Your Needs
Hopefully your communication with suppliers and partners is consistent and fluid. Having a strong relationship with all of your supply chain partners can pay off in times of challenge like this. You want to make sure you are actively working in tandem with your partners to get the best products to your customers when you are next able to do so.
Andre Neumann-Loreck, Founder and Managing Partner of On Tap Consulting explains, “As manufacturers in China begin to come back into production, they are trying to get caught up on orders while operating short handed. We are concerned about quality. The production line workers are under pressure and they are behind. Our advice to companies is to pay extra attention to Quality Control test results and to Quality Assurance (QA). We recommend source inspection, if possible, and at a minimum have some units shipped to your offices too; look at products from the latest lots to garner confidence that you know exactly what you are shipping to your customers. Quality is a big concern and I think it needs extra attention right now and in the next few months.”
Neumann-Loreck goes on to say, “One actionable piece of advice I have for companies given the current supply chain disruptions: if you have a known demand, and you’re wondering when or whether to place your next purchase order – yes, do it. Place the order. It will be better to get it on the CM’s book. Get it in their planning process; you want to be in the queue. It will improve your chances of getting product when you need it.
“Another piece of advice is getting forecasts out. It is best practice to issue at least a six-month rolling forecast in writing to your CM monthly. This is even more important now because they are under so much pressure to catch up and they will prioritize responding to demand they have visibility to and which they believe is real. If you can provide visibility into your actual requirements and build trust, you will achieve better outcomes.”
If you are in need of operations or logistics support, especially in this sensitive time, please reach out. The DCL team has a robust network of resources and partner companies.