Just after 31 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 once again remain very much ongoing.

We had planned for this weekly update to be published on this coming Monday, but we have elected, because of events, to publish Saturday, two days earlier.  COVID-19 China outbreak

In this sixth update we provide our readers with updated information that again points to virus containment not occurring as well as the ripple impacts becoming more visible among  multi-industry customer demand and supply networks.

Once again, the takeaway for multi-industry sales and operations planning (S&OP) and supply chain management teams is providing a dedicated and vigorous effort in monitoring and business impact assessment. Indications point to continued disruptions in the weeks to come along with visibility and interest at the highest levels of businesses large and small.

 

Latest Virus Snapshot Overview

As we pen this February 29 update, the John Hopkins CSEE COVID-19 Global Cases Dashboard  indicates the following summarized statistics:

More than 85,400 virus cases reported globally, an addition of 5870 cases since our last update five days ago. The majority of cases still remain in mainland China but according to the World Health Organization (WHO), the virus has spread to at least 49 countries, and continues to spread.

Reported deaths of more than 2900 souls, an increase of 300 since our prior update.

A total of 39,000 recovered cases, an increase of nearly 14,000  since our prior update, which is somewhat encouraging.

Besides the epicenter Wuhan district and broader Hubei province in China, the second-highest outbreak rate remains South Korea with a reported 3,150 cases, followed by Italy, Iran and Japan.

Yesterday, the WHO increased the risk assessment of this virus outbreak to a notation of “very high” across the world. The Secretary General indicated that health officials are observing “linked epidemics of COVID-19 in several countries, but most cases can still be traced to known contacts or clusters of cases.” Further stated: “We do not see evidence as yet that the virus is spreading freely in communities.” However, in the United States and other regions, there are some local media reports indicating some evidence of community spread. Many of the impacted countries are now taking measures to not only quarantine those diagnosed, but attempt to restrict travel and public assembly.

What is important to focus on is the WHO statement that while this virus could turn into a pandemic, fear and panic must be avoided.  We certainly echo that sentiment and will not utilize that term until it is pertinent.

There are further media reports that new cases of the virus are now ebbing within the former virus epicenter in the Hubei region of China and we trust that this is the case.

 

Business Impacts Across China and Linked Regions

Yesterday, global equity markets incurred a significant selloff over economic fears related to impacts to the global economy. Financial media headlines noted this as markets having their worst week of declines since the global financial crisis. The Dow Jones dropped a cumulative 12 percent this week.

Fears about this virus’s impact have indeed mushroomed, and many are seeking definite information relative to specific multi-industry supply chain impacts. In short, many eyes are focused on the definitive impacts to global customer demand and product supply networks. The search terms: ‘supply chain impacts of coronavirus’ can yield over 48 million results on Google.

Hundreds of companies have already issued investor warnings related to material impacts related to either product demand or global supply networks.

As an example, global consumer products goods producer Procter & Gamble warned that China represents the company’s second largest global market. The company identified 387 suppliers in China that ship to it globally, more than 9,000 materials, impacting about 17,600 different finished products.

Casual shoe producer Crocs expects first-quarter revenue to be hurt by $20 million to $30 million due to disruptions from the virus outbreak. The company indicated that many of its sellers in China remain closed, with those that are open seeing reduced operating hours and traffic, with traffic declines expanding throughout Asia.

Toy manufacturer Hasbro indicated that the company continues “to have office and third-party factory closures” in China as a result of the outbreak. The company CFO indicated that China is responsible for about two-thirds of its global sourcing: “The biggest unknown right now is how quickly the manufacturing factories can get their production ramp back up.”

The incidents of warnings continues, and thus the growing global concerns of economic and other impacts.

 

Multi-Industry Product Demand and Supply Network Vulnerabilities

As we continue to point out, the Wuhan and associated Hubei Province area serves as a manufacturing hub for automotive, high-tech, optical component and certain pharmaceutical API ingredient related supply networks.

With the inevitable spread of this virus globally, the ripple effects on multi-industry customer product demand and supply networks is taking a new turn, one that cascades among various tiers of networks.

As an example, The South China Morning Post reported this week that: “Coronavirus second-wave’ could hit China, Japan and South Korea supply chains” as the virus subsequently impacts various tiers of demand and supply networks.  Noted is that these three Asian regions contribute 24 percent of the global economy with a reported combines annual trading volume of $720 billion. With travel restrictions now in-effect among these countries and with their strategic presence in high-tech, advanced technology and upstream automotive, medical device or other supply networks, the ripple effect becomes more magnified. And so are the fleeting options for alternative sourcing options.

The Washington Post reported this week on growing fears of potential U.S. drug supply disruptions principally because of the nation’s “convoluted and highly outsourced pharmaceutical supply chain.” This report highlights the growing vulnerability not only for medications utilized in the U.S., but in the chemicals used to produce them, noted as Active Pharmaceutical Ingredient-API, which have overwhelmingly be sourced in China, India and among other lower-cost regions. The key statement: “The supply chain’s roots now run so deep that it’s difficult to fully anticipate where critical shortages could emerge” would well resonate with our readers. The report further raised the specter of pharmaceuticals as core to national emergency, including the active presence of a domestic sourced supply network for emergency needs.

Since late January, the U.S. Federal Drug Administration-FDA has been in contact with more than 180 manufacturers of drugs, reminding of applicable legal requirements in alerting to any drug’s supply chain disruptions, as well as reminding manufacturers to evaluate all tiers of supply networks, including API supply.

Supply Chain Matters would add that today, determining supply chain roots is much easier to accomplish with advanced supply chain planning applications, and with pharmaceutical and drug supply networks, safety stock levels are usually robust. The challenge often in supply chain disruptions is not discovering the disruption until after operations fully resume. In the specific case of this virus, if and when the virus spreads across China, India or other regions, the options to discover and mitigate the disruption continue to ripple.

A leading indicator of multi-industry impacts is that of shipping activity into and out of the impacted region. Some reports are indicating that activity among China’s major ports may be returning to some semblance of normal, but sailings from the region remain rather low. The Ports of Los Angeles and Long Beach are projecting a 25 percent drop in expected container volumes this month.

As noted in our last update, global auto manufacturers continue to experience the initial signs of auto parts shortages, particularly factories in South Korea and across the Eurozone. According to The Wall Street Journal, automotive suppliers are now warning of certain parts shortages use in North American factories in the coming weeks, with particular concerns for electronic components, while other critical shortage parts are being air freighted to respective production regions. General Motors has warned of parts shortages potentially impacting plants in Michigan, Indiana and Texas.

 

Supply Chain Matters Updated Takeaway

The ongoing outbreak continues to widen and with implications that virus containment may be fleeting, it is becoming ever more evident that the business and supply network disruption implications will extend themselves for several additional weeks, or potentially months.  Once again, that will provide challenging individual decisions among businesses large and small, and their respective supply chain operational teams.

The priority remains extensive inventory planning and safety stock 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.

Previously, we shared a report highlighting the actions that Amazon is taking to assess short and longer-term impacts of this disruption for the online provider’s owned and third party hosted sellers.

Supply Chain Matters has been in receipt of advice from global law firms and other experts, and we will continue to pass them along in subsequent added blogs.

Again, heed expert advice in planning for the worst while hoping for the best. While some may opine a view that COVID-19 fears and impacts may be overblown, the reality of what is actually occurring among and across B2B networks will provide the real evidence. The good news is that today, teams can take advantage of more advanced technology and data analysis tools to assess real-time conditions and trending.

 

Bob Ferrari

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