As we write this, in early March 2020, the coronavirus has begun to hit the U.S. in its steady path across the globe. Schools and mass gatherings are shut down, the President has declared a national emergency, and stores are running low or are out of supplies like toilet paper and hand sanitizer.
Many media outlets predict that the human impact of the Covid-19 outbreak extends beyond illness into big production problems at manufacturing companies and in their supply chains. Here’s what to expect from the coronavirus in the near future.
Big Virus—Big Supply Chain Implications
The Harvard Business Review says we are really in for it, and business leadership should brace themselves. They say by mid-March, thousands of companies will temporarily shut down production. The manufacturing sector will be profoundly affected across Europe and the United States. Any company relying on China for imports of parts, materials, or products is likely to struggle.
The impact of the coronavirus on global production makes the 2002-2003 SARs outbreak seem like a blip on the radar, according to the article. Since SARs, more American and global companies are dependent on China for some part of their production workflows. Unlike SARs, which had around 8,000 cases, the coronavirus has already surpassed that by about 70,000 cases.
Attention business leadership: It’s getting ugly out there.
We are just beginning to see the disruption in our global manufacturing and supply networks.
Part of the problem is that manufacturing has gone lean. Offshoring and outsourcing have reduced supply chain costs but created potential risks to the entire chain. The Harvard Business Review points out, “Such cost-cutting measures mean that when there is a supply-chain disruption, manufacturing will stop quickly because of a lack of parts.” Most companies only store 15 to 30-days of excess inventory. This virtually guarantees supply chain issues beyond those dates.
All of these issues affect manufacturers in ways we are already witnessing:
- Car manufacturers like Fiat Chrysler and GM are temporarily stopping production in some of their factories because they can’t get parts.
- Apple announced lower earnings reports due to a downslide on iPhone demand in China.
- The FDA reports human drug shortages are expected because some of the ingredients are in short supply. They say there are at least 63 U.S. manufacturers, which leverage 72 Chinese factories in their supply chain.
- Even bridal gowns will be in short supply this May since many are made in China.
One article suggests that 75% of U.S. businesses will experience a disruption in their supply chain due to the global pandemic. Modern Healthcare reports that much of the world’s supply of generic drugs come from India, who, in turn, relies on China for the active ingredients in these medications.
What’s Next for Supply Chain?
While these are just a few examples, they illustrate the fragility of our global supply chain. We are just beginning to feel the effects of the coronavirus here in the U.S., so we can likely expect both labor and supply shortages in the future. Now is the time to develop contingency plans for logistics, supply chain, and manufacturing production to lessen the impact of this pandemic over the next 90-days.