How will coronavirus impact supply chains?
Expert offers insights on how the coronavirus will impact logistics and how companies can mitigate issues.
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It could be months before shoppers notice the impact of coronavirus on store shelves, but there’s a lot manufacturers and suppliers can do to mitigate any impact.
That’s according to Sebastian Garcia-Dastugue, Ph.D., marketing & logistics professor, Florida International University.
He says most products coming from China, where the virus was first detected, are made months in advance, so any changes on store shelves won’t be immediate.
“Whenever you think about China there is a three- to four-month ship. What’s happening today will be at the stores four-to-six months from now,” he explains. “This will not hit us now, but it will hit us in the near future.”
He said parts of China have been completely shut down, so manufacturers in the country have not been manufacturing. While about 52 percent of them have resumed operation, there’s still a long way to go.
And it’s not a matter of “working overtime” to get back up to speed, because most of these facilities are already operating at a high capacity.
“Let’s assume that the problem is solved today and everyone will start to work in China... while they haven’t been manufacturing for at least a month and a half to two months,” Garcia-Dastugue says.
And that will have a ripple effect.
“The dependency that the world has on Chinese manufacturers is huge,” Garcia-Dastugue says. “So Best Buy may not have anything on the shelf floors, everything is made in China. Target, the majority of things are made in China. Walmart, everything that is not fresh is probably made in China.”
Manufacturers can mitigate issues
Garcia-Dastugue offered tips for how manufacturers and suppliers can mitigate any issues, though.
He recommends manufacturers create a list of materials they use, including raw materials, packaging and anything else. Then identify where exactly they are coming from and create a stop-light monitoring system, as in green light for materials that shouldn’t have any issues, yellow for possible issues, and red if they know the material will be delayed.
“Then develop a specific plan for each and try to find alternative sources immediately,” Garcia-Dastugue said. “For example if China is an issue, then if you can buy something from Brazil, from Peru, from any place that has not been affected so much now.”
And then manufacturers should assess it every single day.
“There is a need to monitor this,” he said. “This should be on the wall somewhere in the company where everyone can see what’s going on.”
He also recommends that companies make speculative purchases and stock up on products that are at risk of being under shortages.
“We know so little and things are evolving so much, that I would have someone review the news and do an assessment every day to inform everyone of what’s going on,” Garcia-Dastugue said.
But he also warns that it’s a fine line between being prepared and falling into a rabbit hole and panicking.
“The word awareness is the central word here,” he said.
As for suppliers, he said this could be an opportunity for them to stand out.
“From my point of view, a good supply chain manager would say which are our most important customers? And let’s start making plans,” Garcia-Dastugue says. “Suppliers need to work with customers. You may need to inform them, ‘This is what we have, this is what we are doing.’”
He recommends they update manufacturers often on the status of things and constantly review the situation.
“It’s a very important moment to gain customer’s trust, to show that you are top of your operation and that you are on top of what's going on in the world,” Garcia-Dastugue says. “You need to tell them that you’re on top of the situation and you need to tell them what you’re doing and what you know.”
According to the Centers for Disease Control and Prevention, the novel (new) coronavirus, which is causing an outbreak of respiratory disease, was first detected in China. But it has since been detected in more than 100 locations internationally, including in the United States.
“It is important to note that current circumstances suggest it is likely that this virus will cause a pandemic This is a rapidly evolving situation and CDC’s risk assessment will be updated as needed,” the CDC says.
As of right now, 647 total cases have been reported in the United States, with 25 total deaths. According to the World Health Organization, 113,702 cases have been reported world wide, with 4,012 deaths.
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