As factories have shut down and transportation is restricted due to the CCP coronavirus, global supply chains are now in tatters. Companies are unable to procure raw materials and components, thereby suffering from lower production and revenues. Some see the supply chain crisis as the first sign that the world has slipped into recession.
Ethan Harris, head of global research at Bank of America, feels that the shock to supply chains is far deeper and more extensive than the recent trade wars. He warns it will likely last for a long time and will have an impact greater than what earthquakes or floods do to businesses.
Harris foresees factory shutdowns to continue well into May and even the subsequent months. “This is kind of a rolling natural disaster… In terms of the impact on global production, the shutdown outside of China will likely become bigger than the impact from China,” he said to Bloomberg.
The impact on global business has been massive. Airbus SE and Volkswagen AG have shut down their assembly lines in Europe due to a lack of parts and restrictions on travel. Germany’s Schaeffler Group, which is a major supplier to carmakers worldwide and employs 87,000 globally, has announced layoffs and a reduction in working workers. In Peru and Chile, copper production has been restricted. This has led to a loss of an estimated 325,000 metric tons of copper production, or 1.7 percent of worldwide annual output.
Nestle CEO Mark Schneider admitted in a recent video message to the company’s workforce that they are facing a significant global challenge and that critical supplies could be interrupted. He warned areas not affected by the viral outbreak to stockpile supplies and prepare for a storm to hit “because hit it will.”
The supply chain shock has also brought attention to AI companies like Noodle.ai that focus on using the power of artificial intelligence to solve business challenges. The company detected coronavirus-triggered supply chain shocks in the food industry in the Asia-Pacific region by late January and took steps to address the issue.
Noodle.ai has added a trove of new information into their algorithms to predict food supply and demand. The aim is to help food distributors determine shortages in advance and prepare enough stock to see them through the crisis. “We’re seeing it as a rallying cry to help the world’s supply chains run… There’s nothing more important right now,” Noodle.ai Chief Executive Stephen Pratt said to The Wall Street Journal.
Companies should establish multiple supply chains, identifying critical components and determining their alternative sources of procurement. Make an estimate of the available inventory in the value chain. This will be helpful in keeping production running and knowing how many goods can be delivered to customers. Businesses will also need to take care of their employees.
“As the virus extends globally, supply chain leaders need to think about how to protect the health of workers, and support individuals who are ill. Providing clear and consistent communication through human resources and travel security is essential… As this crisis is ongoing, the risk is that crisis management teams become fatigued and make poor decisions,” Sarah Watt, senior director analyst with the Gartner Supply Chain practice, said, as reported by Supply Chain Digital.
Identify which areas of the supply chain can be accelerated. Companies should be ready with flexible transportation options that can be utilized to speed up deliveries when possible. Finally, do a few stress tests to determine where and when supply chain issues could start to impact your finances so that you can be ready to deal with them when it’s time.