4 MIN. READ
The number of supply chains in China has been trending downward since the Trump administration‘s trade war began. The latest impact to Chinese supply chains is the coronavirus.
This strain of coronavirus is highly contagious and has already killed more than 260 people. If it continues at its current pace, companies sourcing materials or products from China should expect some effects during the coming months.
These may include delays, limited quantites or higher prices.
What is a Coronavirus?
Coronaviruses are a relatively common family of viruses that cause upper respiratory infections in humans. The common cold is actually a type of coronavirus. Certain strains can be extremely dangerous, however.
One example is the SARS virus that wreaked havoc throughout parts of China in 2003. This new strain, officially named novel coronavirus (2019-nCoV) has shown evidence of human-to-human transmission.
More than 12,000 individuals have been infected as of January 31, 2020. There is no vaccine yet, so treatments focus on alleviating symptoms rather than curing the virus itself.
Point of Origin
The virus' epicenter is the city of Wuhan, home of China's steel industry and many multinational companies such as General Motors, Honeywell and Walmart.
The city is currently under quarantine, with none of its 11 million residents allowed to leave due to the virus. In a few extraordinary circumstances, foreign nationals who show no symptoms are being evacuated from the city.
Ripple Effect on Supply Chains
As unnerving as the human aspect is, products are not faring much better. The government and companies have closed all factories, essentially cutting off that supply chain from the world.
Most companies in the region have taken measures to limit the virus' spread. Some have restricted employees to working from home, while others have suspended business travel to Wuhan. The severity and extent of disruption remains to be seen. Most executives are optimistic, but extremely cautious.
Bosch CEO Volkmar Denner said there was no current interruption to the company's supply chain. However, he did mention that forecasts predict the disruptions will increase as the virus peaks in the next few months. Its Wuhan factories employ 800 people and build steering systems and thermotechnologies.
Globally, Bosch is heavily involved in producing a variety of components for conventional cars along with motors and transmissions for electric vehicles. Its plants in China were already closed for the New Year and were slated to remain closed until at least February 3.3
Apple has a Chinese supply chain that consists of several million workers. Foxconn, its primary supplier, has increased health screening at its Wuhan factory.
This includes daily monitoring of workers' temperatures and provision of surgical masks.4 The effectiveness of these precautions is debatable as individuals can be contagious for several days before exhibiting symptoms of a fever.
Most of Apple's main manufacturing hubs are 500 miles or more from Wuhan and are not immediately at risk of disruption. If the epidemic spreads, the tech giant will benefit from a lesson learned after the 2011 earthquake in Japan.
All its products are dual-sourced for redundancy as well as negotiation leverage. While dual-sourcing is more expensive, it reduces the risk of low supply due to circumstances beyond the company's control.
Positive Outlook From Some
Some companies do not foresee a major disruption to their supply chain. Vas Narasimhan, chief executive of pharmaceutical giant Novartis, believes his business will come through this epidemic unscathed.
Nonetheless, the company has asked employees in China to work from home until at least February 10. They have also stated that it may take a year to develop a vaccine for this strain of coronavirus.
Epidemic Epilogue
This may be a pivotal moment for many domestic companies that do business in China. The cost savings of manufacturing in China are slowly eroding to parity with products made in the United States.
A distant supply chain, vulnerable to epidemics, political upheaval, natural disasters and international trade relationships, is an ever-present risk.
Keeping manufacturing domestic not only improves local economies, but also alleviates many of the uncertainties that can occur overseas. Reshoring is a safe bet for both companies and communities.
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Article Sources
1. https://en.wikipedia.org/wiki/2019%E2%80%9320_Wuhan_coronavirus_outbreak
2. https://www.scmr.com/article/coronavirus_and_your_global_supply_chain
3. https://www.autoblog.com/2020/01/29/bosch-coronavirus-auto-suppliers/
4. https://appleinsider.com/articles/20/01/27/chinas-coronavirus-will-impact-apples-business---but-how-much-is-unknown
5. https://www.scmp.com/tech/big-tech/article/3047911/apple-supply-chain-braces-disruption-coronavirus-outbreak
6. https://www.marketscreener.com/news/Novartis-predicts-rising-sales-and-minimal-disruption-from-coronavirus--29905390/
7. https://www.cnbc.com/2020/01/29/novartis-ceo-warns-finding-a-coronavirus-vaccine-will-take-over-a-year.html
8. https://wallstreetwindow.com/2020/01/could-the-coronavirus-epidemic-be-the-tipping-point-in-the-supply-chain-leaving-china-charles-hugh-smith-01-30-2020/
9. https://www.industrynet.com/?src=WFB
