Just after nineteen 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 fourth update we provide our readers with updated information as well as added insights.

In short, the potential disruption impacts to multi-industry global supply chains are becoming more visible with each passing week. Enough so that we are now advising multi-industry sales and operations planning (S&OP) and supply chain management teams, that have not as yet done so, to provide a dedicated and vigorous effort in monitoring and business impact assessment.


Latest Snapshot Overview

As we pen this February 17 update, the latest reported numbers of infected individuals have once again nearly doubled since our last February 10 part three update. There are now more than 71,000 confirmed cases of the now officially named COVID-19  virus globally, with the death toll now exceeding at least 910 souls.  Last week, the government of China changed its parameters for identifying this virus, and as a result, reported cases have spiked dramatically. Consequently at one-point, 15,000 additional cases were reported in a single day.

Besides the epicenter Wuhan district and broader Hubei province in China, the second-highest outbreak rate continues to be a cruise ship docked in the Port of Yokohama, Japan, where a now reported 356 confirmed cases have been reported.  Last week, we highlighted that Japan’s health officials were very concerned to the possibility of a full-blown outbreak on this particular cruise ship, and subsequently over the weekend, four busloads of U.S. citizens disembarked for direct air travel back to their home country to undergo an additional mandatory 14 days of quarantine. We had noted a separate cruise ship, the Holland America Westerdam with over 2000 passengers aboard had been denied entry by four separate Asian countries because of virus contamination concerns. That ship has now made port in Cambodia where passengers disembarked, only to be followed by a report that 2 passengers were reported as infected after leaving the vessel.

We include mention of these cruise ship related developments because the implications could possibly spillover to global transportation channels where entry and destination ports and cities could vey well place certain restrictions on movement, screening or quarantine.

Last week, the World Health Organization (WHO), commenting on the global outbreak situation at-hand, indicated that: “every scenario remains on the table.”

Once again, the bottom line reflects few signs that the virus outbreak or infection containment rates have turned any corner, which provides an ongoing important context for risk assessment.

COVID-19 China outbreak

Most Concerning Multi-Industry 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.

From our lens right now, the one to most monitor is that of dwindling supplies of needed protective gear and monitoring instruments required by health delivery workers and healthcare services that are being marshalled to contain the ongoing virus outbreak both within China directly, and in other countries.

Last week featured multiple reports of building shortages of protective face masks, N95 class face respirators and protective gowns for healthcare workers. For instance, both the New York Times and Washington Post reported separately how doctors and healthcare workers in China are indicating chronic shortages of protective masks and required protective wear. The director general of WHO indicated earlier in the month that demand for virus treatment protective materials is 100 times more than normal levels and that prices were 20 times higher. That situation will likely worsen until containment levels come under some basis of control.

On Friday, for the first time, the government of China disclosed that upwards of 1,716 medical care givers had contracted the virus, and six had died, including the physician who originally diagnosed this virus. The Times report further indicates that: “With medical supplies so scarce, many healthcare workers in Wuhan also said they had to accept substandard gowns, gloves and masks.” Once more, reports indicated that trucks carrying critical medical suppliers are being stopped for multiple driver and cargo checks, delaying shipments.

The Washington Post report profiled Prestige Ameritech, the reported only U.S. based surgical masks manufacturer which continues to be inundated with added orders beyond producing at the rate of 600,000 masks per day, and still struggling to meet demand. A company senior executive raises additional concerns that there are not enough U.S. domestic manufacturers to be able to respond to a U.S. widescale outbreak of the virus. Mask and respirator manufacturer 3M has already operationalized around the clock production levels to try to satisfy virus related demand.

While many countries inventory stockpiles of emergency healthcare delivery supplies as part of national preparedness, there are growing concerns related to global wide hoarding and to whether individual countries are taking necessary precautions to prepare for a sudden need for such supplies.

We highlight the public health supply chains directly supporting global virus containment because as demonstrated in both the 2009 HiN1 swine flu pandemic, and the 2014 Ebola crisis in West Africa, without effective virus containment and treatment, the broader multi-industry consequences could well have been far more far reaching in terms of global commerce and movements.

Already there are concerns that dentists will not be able to deliver normal treatment if supplies of protective masks are exhausted. There will likely be similar cascading effects to other normal healthcare delivery or preventative disease services.

In other words, in the case of a potential global pandemic, all customer demand and supply networks will find a common reliance and crucial dependency related to virus containment and treatment.

The critical priority remains emergency healthcare supply response, and why so many international and specific country efforts are becoming more laser-focused on this area.


Production Impacts Across China

As we pen this fourth Supply Chain Matters update, there remains an unclear determination as to when China’s various factories, distribution and transportation networks can resume some semblance of normal operations. Transportation into and out of impacted regions remains severely constrained with numerous health checks of vehicle operators and passengers.

A new research study from Dun and Bradstreet estimates that at least 51,000 companies have one of more direct or Tier One suppliers in the impacted regions of China. Further indicated is that at least 5 million global-wide companies have one or more Tier Two suppliers within the impacted region including 163 Fortune 1000 companies.

This study further estimates that if a vaccine is not consummated by the second quarter of this year, and if the containment is delayed into the fourth quarter, the economic cost could be as much as one-percentage point slowdown in global economic growth.


Industry Supply Chains Impacted

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.

Qualcomm, one of the largest producers of mobile smartphone phone network chips and modems has now warned of “significant uncertainty” around the company’s supply chain.

Just today, Apple warned investors that the company does not expect to meet its previously stated second quarter revenue forecast established in late January. While all iPhone and other consumer electronics related manufacturing facilities across China have reportedly reopened, it remains unclear as to when full normal production schedules can be resumed. As noted in our last part-three update, contract manufacturer Foxconn had already indicated that initial production priority will be allocated to producing surgical masks for various production workers including those residing in company dormitories. Other masks produced are likely destined to local and Chinese government priorities.

As we noted in our prior update, Industry publication EE/Times indicated that some high-tech industry watchers  predict that the high-tech supply chain disruption could possibly extend three to six months. Optical components are also crucial to the rollout of future 5G fiber network.

Fiat Chrysler added its voice to the various global automotive manufacturers indicated that certain European based assembly lines will likely have to suspend production from lack of supply of certain components.

Last week the Economist magazine published an International column editorial: The new coronavirus could have a lasting impact on global supply chains. (Paid subscription required) This opinion column pointed to reasons to believe that the global supply chain impacts could prove to be unpleasant. Big multinationals have reportedly left themselves exposed to supply chain risk both because of just-in-time inventory replenishment  and ongoing strategies to continue to source in lower cost manufacturing regions such as China. Further, companies are today much more reliant on Chinese factories than they were at the time of the 2003 SARS outbreak. Increased supply chain vertical integration that is all sourced in China is a further concern.


Supply Chain Matters Updated Takeaway

As the ongoing outbreak continues to widen, it is becoming evident that the business and supply network disruption implications may extend themselves for several additional weeks, or potentially months.

The initial signs of both customer demand and supply network disruptions are now becoming more visible, and our belief is that multi-industry sales and operations planning (S&OP) and supply chain management teams, that have not as yet done so, must marshal a dedicated effort in monitoring and business impact assessment. The task at-hand is assessing higher risk disruption impacts, knowing that some impacts may be inevitable.

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. History in such disruptions often point to the latency of hidden surprises surfacing in the lower tiers of product supply network.

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. As much as possible, include lower tiered value-chain components in such assessments. Capacity and resource management remains a critical determinant at this time, as is decisions to potentially operationalize component inventory alternative sourcing.

Once again, assisting global-wide emergency supply chains to complete coordinated efforts for containment and medical treatment must remain the ongoing priority of global logistics resources. Lend assistance and a helping hand in these efforts.


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


Bob Ferrari

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