Just after twelve days since our initial Supply Chain Matters commentary focusing on the impacts of the ongoing global coronavirus outbreak on China based and global supply chains, the containment, supply chain assessment and risk phases remain ongoing.

However, the potential impacts to multi-industry global supply chains is becoming more concerning with each passing day.

Coronaviris screening

Latest Snapshot Overview

We again stress that the outbreak is both a global humanitarian as well as a supply chain related crisis. Our thoughts remain with all of the victims and their families.

As we pen this February 10 update, the latest reported numbers of infected individuals have doubled since our last February 4 update. Those numbers include over 40,000 being infected  globally, with the death toll now exceeding at least 910 souls. Yesterday, China reported 97 deaths alone, reported in a single day.

The death toll thus far now surpasses that of the 2002-2003 SARS outbreak that resulted in the death of over 700.

Besides the epicenter Wuhan district in China, the second-highest outbreak rate is turning out to be a cruise ship docked in the Port of Yokohama, Japan, where a reported 65 newly confirmed cases have been reported, raising the total number to 135 confirmed cases of the virus. Health officials are now very concerned to the possibility of a full-blown outbreak on this particular cruise ship.

Meanwhile, a separate cruise ship, the Holland America Westerdam with over 2000 passengers aboard has been denied entry by three separate Asian countries because of the virus contamination concerns. The ship is now expected to dock at the Port of Laem Chabong, in Thailand, after being denied entry to ports in Japan, the Philippines and Taiwan.

We include mention of these cruise ship related developments because the implications could possibly spillover to ocean container shipping, where entry and destination ports could vey well place certain restrictions of vessel crews or cargoes during this ongoing outbreak period.

Multiple researchers and academics remain concerned to the real possibility that the outbreak numbers are far larger. Yesterday, there were reports that the World Health Organization (WHO) and the U.S. Center for Disease Control (CDC) are now expected to be finally sending expert infection teams to China to lend on the ground added assistance.

The bottom line thus far is that there are few signs that the virus outbreak or infection containment rates have turned any corner.

 

Production Impacts Across China

As we pen this Supply Chain Matters update, today was the scheduled day for resumption of factory operations across China after a government imposed additional week extension to the Lunar New Year holiday period. Thus far, indications that we have monitored indicate that few factories may be able to resume full operations.

Bloomberg reported late last week that Foxconn, Apple’s primary contract manufacturer, has little idea as to when assembly lines will be able to resume production. The report indicated that current priority remains with assuring the health safety of the contract manufacturer’s labor force, and to the broader population area. Further indications are that initial production operations may well be dedicated to the production of surgical protective masks both for all factory workers and other citizens of China where supply is limited.

Many local governments throughout China continue with restrictions on travel and movement of people while the listing of travel alerts and bans for citizens traveling to and from China remain in-effect.

 

Industry Supply Chains Impacted

Thus far, the ongoing visible industry supply network impacts are growing, and will continue to do so.

The Wuhan and associated Hubei Province area serves as a manufacturing hub for automotive, high-tech, optics and certain pharmaceutical API ingredient related supply networks.

Automotive and Truck

In the automotive sector, beyond the initial indications by Hyundai Motors announcing a temporary suspension of auto production within its South Korean auto assembly plants, Production among various Chinese component auto parts producers remain idle which has the consequent ripple-effect impact on domestic and global automotive brands. Both Honda and Toyota have indicated that they each do not expect their factories in China to resume production until the week of February 17. Tesla’s newly opened Shanghai production facility remain closed last week.

German auto makers have now indicated growing concerns for potential disruption to auto production levels in both China and Europe. The CEO’s for both Ford Motor and General Motors indicated last week that global supply chain assessments are ongoing.

High Tech and Consumer Electronics

Many on the ground high tech industry experts and consultants are pointing to the unknown supply network ripple effects emanating from China.  Coming on the heels of the trade war involving the U.S. and China, some supply chain supply management teams had either initiated altered routings of component and finished goods production, to avoid new tariffs. That has added to the dependencies and linkages of component and material assembly movements recently initiated to avoid tariffs. With growing signs that production facilities in Taiwan, Vietnam or even Malaysia  are increasingly being impacted by absence of skilled Chinese workers, or ongoing suspensions of Chinese production plants, the impacts could be compounded.

Industry publication EE/Times indicated last week that experts predict that the high-tech supply chain disruption could possibly extend three to six months.

A lot of concern focuses on potential impacts for new product introductions being planned in the first half of this year.  Securities advisory firm TF Securities analyst Ming-Chi Kuo indicated in a February 2 advisory that he anticipates that Apple’s iPhone shipment rate may be impacted up to 10 percent.

 

Broader Global Impacts

Other reports point to manufacturers becoming increasingly concerned to the cascading effects, given the ongoing quarantine and containment measures and the possibilities of extended factory closures.

An online survey conducted among 379 companies on January 28-29 conducted by the MIT Center for Transportation and Logistics (CTL) and featured on Linked-In. reported last week by Professor Yossi Sheffi, indicated that many firms remain in a wait and see mode at this early stage of the outbreak. According to this study, at the end of January 2020: “relatively few respondents anticipate that the crisis will fundamentally disrupt their supply chains in the coming quarter.” In his latest summation, Professor Sheffi reminds readers that while it remains too early to draw definitive conclusions regarding the overall impact to global supply chains, companies should remain concerned.

Supply Chain Matters remains of the viewpoint that the overall wider spread impacts of the outbreak are yet to definitively be determined.

With growing concerns related to the ongoing measures by China and international health agencies relative to containment measures, there are clear unknowns as to ongoing global impacts.

As noted in our previous update, looking back on the prior SARS outbreak, as well as major global supply chain disruptive events such as the tragic earthquake that struck Japan, and the devastating floods in Thailand, all occurring in a single year, the important lessons gained were comprehensive assessments that included cascading and rippling disruption that either began with lower-tiered or higher-tiered supply components or material networks, discovered to be sole or limited sourced, globally.

Other lessons reflecting on natural disaster or disease outbreaks point to impacts not showing initially, but later when more definite information became available. Right now, with a limited number of Chinese manufacturers in Wuhan or Hubei province being able to operate with full staffing, production and delivery assessments will likely remain sketchy at-best.

 

Current Takeaway

For multi-industry supply chain management teams, the priority remains extensive assessment, supplier communication and contingency response planning. Communication should be both internal among sales and operations planning (S&OP)  and among associated senior executive briefings, as well as external, as much as possible, with suppliers potentially impacted.

This remains the time for active scenario-based analysis as to the quantitative and business impacts of key component shortages, or to scenarios that source constrained supply with back-up strategic suppliers. Capacity and resource management is a critical determinant at this time. Rather than provide added risk of illness, confine international travel to business essential tasks.

We again reiterate that helping in assisting global-wide emergency supply chains to complete coordinated efforts for containment and medical treatment are the obvious ongoing priority of global logistics resources. Lend assistance and a helping hand in these efforts. If you can, lend positive and encouraging assistance to impacted suppliers in their efforts to both asses impacts and restore some semblance of normal operations, which will likely take added time.

 

Bob Ferrari

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