What impact is Coronavirus having on global supply chains? - World Procurement Congress

The spread of coronavirus has been rapid. As of Friday morning, the virus has killed 636 people and infected over 30,000 in mainland China, according to the National Health Commission’s latest figures. There have also been confirmed cases in Japan, Hong Kong, Thailand, Singapore, South Korea, Australia, Germany, Taiwan, the US, Malaysia, Vietnam, France, the UAE, the UK and India.

While the human cost has been great, the spread of the virus has also affected global supply chains. Major Chinese cities with their manufacturing hubs have been locked down, international airlines have suspended flights into the country and several governments have evacuated foreign citizens in the country.

Emergence and disruption

The virus emerged in December and began spreading just as Chinese New Year celebrations started and people travelled across the country to be with their families. To try and contain the pathogen, authorities extended the holiday break by three days. While some businesses reopened on 3 February, reports say that many enterprises were ordered to remain closed for a further week in at least 24 of China’s 31 provinces.

As a hub of complex global supply chains, a problem for China is often a problem for the world.

In last week’s Crunch, we asked for your insights on how the virus was affecting your supply chains. We have used this feedback to build an early picture of the situation and what procurement teams need to be concerned about going forward.

As expected, disruption has been noted by procurement chiefs with 13% of respondents telling us that they had seen major disruption while 42% said that they had seen minor disruption.

To tackle this global issue, procurement chiefs are taking the following steps:

1) IDENTIFYING AND REACHING OUT TO IN-COUNTRY SUPPLIERS

One of the first steps we have seen functions take is to assess where and how they are affected. Assessments of where suppliers are located and whether they are in ‘at-risk’ areas have taken place. Based on these assessments, they have started to contact suppliers to better understand how the disruption will affect them.

2) WORKING TO MINIMISE DISRUPTION

Procurement teams are working closely with their supply chain colleagues to restore supplies and minimise any effect on supply.

Other organisations have told us they are working to increase stocks and make early bookings on carrier flights. This is based on the fact some shipping firms have begun to avoid sailing into affected regions.

3) PREPARING FOR LONGER-TERM DISRUPTION

While procurement chiefs may have the situation under control, they must be aware of long-term risks that could cause disruption.

If the virus continues to spread, the Chinese government could apply further restrictions on businesses’ opening hours. This would hamper production lines.

Meanwhile, labour shortages are expected over the coming months as tighter controls on the movement of people further limit businesses’ production capabilities. Outside of this, one organisation told Procurement Leaders it needed to do more work on seeing where the impact would disrupt the upstream supply chain and was working with its Tier-1 suppliers to ensure it had a handle on that.

Because the full effects of this virus have yet to be realised, both in terms of the human and business cost, the issue should remain a key concern for procurement chiefs over the next few months. Although companies have taken the first steps, work is still being done to contain the disease and major disruption could still emerge and hurt supply chains.

 

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This article originally appeared on Procurement Leaders’ CPO Crunch, a free, weekly resource for CPOs that provides analysis of the latest trends that are shaping the agenda of procurement functions across the world. You can get these direct to your inbox by signing up here.