3 minute read • published in partnership with SCCG
Insight: What is the impact of COVID-19 on the global supply chain?
The rapid spread of the Coronavirus (named COVID-19) has shocked manufacturing industries and the supply chain across the world, forcing rushed and reactive strategies across many sectors. By some, including Isaac Larian, CEO and Founder of toymaker MGA Entertainment, it’s being considered “the worst supply chain problem in the last 40 years”. The Supply Chain Consulting Group explores the impact to global supply chains.
In East Asia and neighbouring countries some factories are being ordered to stay closed, while in other regions, workers are afraid to return to work even if their factory is reopened. In multiple cities and regions across China, including Shanghai and Shenzhen, airlines and cargo operations are now completely suspended, with many of the factories and logistics warehouses are on extended leave.
As Wuhan and Hubei are the main automotive parts and producer regions across China, the automotive supply chains are identified as the most vulnerable due to the fact that they operate largely JIT production schedules. Jaguar Land Rover (JLR) and parent company, Tata Motors, extended a shutdown of their unit plant at Changshu in China due to the COVID-19 outbreak. Concern that the virus is likely to affect its fourth-quarter performance if disruptions continue, JLR declared that the supply chain outside China is also expected to suffer. Nissan will temporarily freeze its production in Kyushu, Japan, as the COVID-19 outbreak starts to pressurise the global supply chain.
Within South Korea, Hyundai, Kia and Renault have all declared interruptions in their manufacturing plants, due to lacking stock, all three being supplied by manufacturing plants in China.
Most of the world’s supply chains rely on the Chinese and East Asia market for parts, raw materials and products and could lead to longer future product delays and shortages. The supply of some finished goods made in the region for the UK market may start to run out in UK stores as the movement of people and vehicles is restricted in the supplier regions, thus interrupting the supply chain. UK retailers worry about the short shelf life and shipments that might not arrive in time for Mother’s Day and Easter, which could lead to further potential loss of revenue, as severe delays are expected.
The pharma industry also suffers, with US being most affected, having about 80% of the US pharma products being manufactured in China. This has inevitably led to the stockpiling of medicines.
Air, trucking and rail cargo services are at the highest risk to suffer severe disruptions, as well as port congestions, as the COVID-19 panic expands and is likely to continue.
Flexport, who serves more than 10,000 clients and suppliers across the globe, is more exposed to being affected by the coronavirus outbreak, as it accounts for 52.2% of the company’s U.S. seaborne inbound handling from China. Both Flexport and DHL have warned of an increased rate of instability for airfreight, as well as marine shipping capacity cuts.
Whilst many manufacturers have business interruption and continuity plans this particular outbreak has hit hard and fast with little warning and seems to have taken the world’s manufacturing industries by surprise.
One thing is certain and that is that Supply Chain Managers across the world will have to find short, medium and long-time strategies, that will help assess and tackle the potential impact of the COVID-19 outbreak on their businesses, in order to cope with the virus’ rapid spread, existing city lockdowns and potential future delays.