Just after 26 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 very much ongoing.

In this fifth update we provide our readers with updated information that 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.

COVID-19 China outbreak

Latest Virus Snapshot Overview

As we pen this February 24 update, the John Hopkins CSEE COVID-19 Global Cases Dashboard  indicates the following summarized statistics:

More than 79,533 virus cases reported globally, with the majority still in mainland China but with new pockets of rapid outbreak impacting countries such as South Korea, Italy, Iran and Thailand.

Reported deaths of 2628 souls.

A total of 25,215 recovered cases.

Besides the epicenter Wuhan district and broader Hubei province in China, the second-highest outbreak rate is now South Korea with a reported 833 cases, followed by Italy with a reported 230 cases mostly in the northern Lombardy region of that country. The category of Other Countries stands as 691, an indication of multi-country outbreaks.

As of this weekend, there are reportedly growing concerns among global health officials of infections among patients who have not recently traveled to China or have come into identifiable contact with confirmed cases. In the case of Italy, reported cases of more than 230 were 30 last week. South Korea’s 833 reported cases were 30 the prior week, prompting the government to raise its highest health alert.

 

 

Production Impacts Across China and Linked Regions

As we pen this fifth Supply Chain Matters update, factories, transportation and logistics providers among  impacted regions of  China remain challenged in garnering enough workers to resume any sense of normal operations. Transportation into and out of impacted regions remains constrained which impacts worker’s abilities to return to factories. In many cases, workers reportedly leaving one province are subject to another 14-day quarantine condition in the new province. Factories and businesses must reportedly be able to certify that workers are virus free, and all workers must be equipped with added protective materials that include masks and gloves.

The Wall Street Journal reported that the American Chamber of Commerce in Vietnam has cautioned that upwards of 50 percent of that region’s manufacturers ranging from steel to furniture, who rely on semi-finished goods imported from China, for further assembly into finished products and shipment to end customers are now experiencing difficulties in obtaining inbound inventory. As we previously noted in earlier updates, there are ongoing challenges related to China based factory managers and workers being able to return to Vietnam.

After just reporting double-digit quarterly sales records, China’s leading online retail platform provider Alibaba warned that hosted merchants remain challenged in having products produced in the region. The online provider indicated that its logistics arm is operating at 20 percent capacity because many couriers cannot return to job locations. While online demand for products is characterized as still evident, supply networks are not. CEO Daniel Zhang  indicated that the online provider “is being tested.”

Last week, contract services manufacturer Foxconn indicated that while production operations have begun, the provider must warn investors of a potential revenue shortfall. Reuters reported last week that the CMS provider hopes to have production levels up to 50 percent by the end of February. However, Asia based equity analyst firm KGI Securities reportedly estimates that Foxconn factories will only be operating at 30 to 40 percent normal capacity by the end of this month. Business network CNBC reported that Foxconn indicated that factories in Vietnam, India and Mexico continue to operate at full capacity with efforts underway to potentially minimize the impact of the virus.

Last week, the South China Morning Post reported that personal computer and smartphone manufacturer Lenovo, which has a large manufacturing complex in Wuhan,  is initiating plans to increase production overseas in an effort to buffer the impact of the virus on its Chinese production facilities. Factories in Brazil, Mexico, India and the United States are mentioned as alternative sites

 

 

Multi-Industry Product Demand and Supply Network Vulnerabilities

In prior updates, Supply Chain Matters has reminded our readers to context previous major network disruptions across all tiers of the product value-chain as a possible indicator to the magnitude of customer demand and supply network vulnerabilities. However, which each passing week, the scope of this outbreak is pointing towards a new unchartered milestone.

As we previously pointed 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.

A leading indicator of multi-industry impacts is that of shipping activity into and out of the impacted region.

Shipping data group Alphaliner reported last week that ocean container carriers had suspended a total of 1.67 million containers of capacity from China services since the start of the Lunar New Year, while carrier themselves have lost an estimated $1.5 billion in business. The CEO of industry leader A.P. Moeller Maersk indicated to The Wall Street Journal that quarantines and travel restrictions have had “a huge impact” on China’s export as well as import volumes with not enough truck drivers to move containers around. The industry is also increasingly concerned about a potential available container imbalance as cancelled sailings add to the imbalance of container inventory.

Global auto manufacturers continue to experience the initial signs of auto parts shortages, particularly factories in South Korea and across the Eurozone. U.S. manufacturers are now experiencing initial indications of select component shortages. Meanwhile, the impact across China’s domestic auto demand and supply networks is yet to be determined other than a belief that it will likely be significant.

 

Supply Chain Matters Updated Takeaway

As 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 may extend themselves for several additional weeks, or potentially months.  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.

In a guest column published in The Wall Street Journal, MIT Professor Yossi Sheff, author of two prominent books on supply chain resilience, advises businesses that with so many ongoing unknowns, consider “just in case” steps to prepare for the virus effects. That includes the establishment of a dedicated virtual management center to accumulate intelligence and supplier assessments. He consuls to establish plans to maximize cash flows rather than profits.

Heed his and other expert advice in planning for the worst while hoping for the best.

 

Supply Chain Matters will continue with pertinent updates as definitive information and global impacts become more visible.

 

Bob Ferrari

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