As an example of supply chain disruption, Apple’s iPhone factory (the Foxconn factory complex in Zhengzhou) has been closed for several weeks. Similarily, Airbus has stopped its production line in Tianjin and Hyundai has also halted production lines. Another area is with shipping. Around 80 percent of world goods trade by volume is carried by sea and China is home to seven of the world’s ten busiest container ports.
The reason why the cornavirus is disrupting so many different types of businesses is due to the high proportion of global Gross Domestic Product (GDP) attributable to the Chinese economy, which is now four times bigger than what it was during the previous severe acute respiratory syndrome (SARS) outbreak. This explains why the impact of coronavirus (2019-nCoV) is set to be much more significant.
READ MORE: New model to estimate spread of the novel coronavirus
To gain an insight into the issue, Digital Journal caught up with Alejandro Alvarez (partner for Operations Performance at Ayming).
According to Alvarez, a risk-centric approach by companies is required: “When it comes to supply chains, the ripples of the coronavirus are only just emerging. Companies are working on their risk assessment plans, but, in reality, how many businesses can trace all their supplies to source? It’s very difficult to get a full grasp on the matter and many companies could be underestimating their exposure.” This captures the complexity of global supply chains, where the points of origin of materials can be difficult to trace and the route that many goods and services take can be very difficult to disentangle.
Alvarez proceeds to expand of just why, despite the complexity of trade networks, the global supply chains are dependent upon China: “Global supply chains have become incredibly complex and the Chinese economy plays an extremely important role in the global economy so there may be some unpleasant surprises in store should import restrictions and containment efforts escalate.” Based on the rate of coronavirus cases, this seems quite likely.
In terms of current and future business strategy, Alvarez notes: “this outbreak actually provides a valuable lesson. As it stands, most businesses are far too dependent on one or two main sources for their supplies. Companies must learn from this and build resilient supply chains by diversifying their sources. If a business has a number of suppliers for the same product, they have an insurance policy should things go wrong – and, clearly, things do go wrong.”
