Only by building in more resilience will businesses survive this fresh test
The coronavirus could force a complete rethink of supply chain organisation, according to the OECD.
The disruption caused by Covid-19 throws into question the just-in-time production model that has become dominant over the past decades.
Laurence Boone, chief economist at the OECD, said trade tensions, the search for a fairer international tax system and climate concerns – and now the virus outbreak – were forcing firms to adapt.
“What we have seen over the past decade is effectively real-time management of stock and very integrated supply chains,” she said. “After this outbreak, firms will likely look at how they are managing stock, how they are organising production, how taxation is impacting them, where they should locate their firms to minimise the risk of climate events and possibly we will see another organisation of supply chains.”
The OECD said the outbreak posed the biggest threat to the global economy since the 2008 financial crisis, taking predicted growth down by 0.5% for this year (p48).
The list of firms hit by the outbreak grows each day. Procter & Gamble, which uses 387 suppliers across China, shipping more than 9,000 materials, said around 17,600 products could be affected. Apple’s iPhone supplies would be “temporarily constrained,” while Dun & Bradstreet research found more than 5m businesses could be affected by supplier shutdowns in China.
Meanwhile, JCB cut production due to a shortage of parts, sportswear brand Under Armour expects a $50-60m hit to revenues, and carmakers including Toyota, Honda, Ford, Fiat, Hyundai and Tesla have reported production delays. Product shipments from China for the first quarter of 2020 have been slashed, by 16% for smartwatches, 12.3% for notebooks and 10.4% for smartphones, reports TrendForce.
With China the main consumer, Mintec predicts demand for copper will drop by 500,000 tonnes this year, while garlic and dried ginger prices have risen as supplies come under threat. Oil prices have also dropped due to lower demand.
Malcolm Harrison, group CEO, CIPS, said: “This black swan event is beginning to seriously derail supply chains and affect business productivity in addition to the cost in human lives. Hoping for the best will not do. We must all remain vigilant to reduce the effects of the pandemic through strong sourcing strategies or sufficient levels of stock.”
Nestlé and Toyota have both restricted business travel to meetings and the Global Business Travel Association said the industry could lose $46.6bn a month as companies cut overseas meetings.
Buyers are being urged to review inventory levels, communicate with suppliers and review pricing structures, ensure a disaster plan is in place, and prepare for when the epidemic is over by understanding location risk across tiers.
Richard Wilding, professor of supply chain strategy at Cranfield School of Management, said the virus had exposed supply chain failings.
“Once more, the lack of risk management, resilience and agility in supply chains has been exposed,” he said.
“The way forward is to admit things will go wrong and to build up resilience across supply networks during the good times – talking and sharing to create collaboration and trust, which will then be invaluable through the hard times.”