The recent effects of Tariffs on the supply chain may pale in comparison to the potential aftermath of SARS-CoV-2. This virus has the potential to cause an economic shock unlike those that led to recessions in the recent past; the oil spike in 1991 that hit consumer wallets or the credit crunch in 2008 that seized up lending markets. The coronavirus has severely disrupted nearly every link in the global supply chain, from raw materials to components to finished goods, which could lead to curtailed production, product shortages, and financial stress across a range of industries. How manufacturing delays ripple through the economy isn’t so straightforward, however. The multi-level nature of raw material procurement for any large manufacturer creates a potentially large field of collateral damage in the event of supply chain disruption. One missing part for the widget from that line halts production and delays everything behind it for unknown time period. This may be an excellent opportunity to consider contingency planning.
What To Expect In The Near Term
Tech companies, apparel makers, and industrial-equipment manufacturers are likely to be hurt most, given that they are most reliant on imports from China and Southeast Asia. A prolonged delay in parts procurement not only would threaten corporate earnings but could affect a company’s cash flow which just rolls downhill. Accounts payable management stresses resources. This is basically the uncertainty that Wall street is attempting to manage. China has become the world’s factory; a now dangerous single source reliance.
The virus has spread to other major manufacturing hubs such as South Korea, and Japan, and is starting to move through Europe. China, and Japan together account for more than a quarter of U.S. imports and more than half of American imports of computer and electronics products.
Among individual companies, Apple and Microsoft warned investors in February that they would miss sales estimates because of supply-chain problems. Possibly the narrative for first quarter earnings of many U. S. companies in 2020. More than a dozen companies in a myriad of industries, from technology to toothpaste, agriculture, and toys have told investors that the corona virus is disrupting their supply chains. Some have said they are expecting an impact on earnings, but few have quantified that. “Trying to size perfectly the corona virus impact at this point is incredibly difficult,” CEO Corie Barry said on Best Buy’s fourth-quarter earnings call Thursday.
Logistics Planning Around The Corona virus
The number one asset of any company is its’ employees. You’ll find out in a crisis who are the stand-out people. Expand whatever employee benefit programs which may provide additional support for employees and their families through the virus term. This is a quick and financially justifiable expense in the short term.
Designate an area to serve as an Emergency Operations Center. The EOC should be the first order of business in your Corona virus contingency plan. EOCs should exist at the plant level, with predetermined action plans for communication and coordination, designated roles for functional representatives, protocols for communications and decision making, and emergency action plans that involve customers and suppliers. Maintaining the supply chain full time will be critical. Downtime on any manufacturing line can cost millions.
The impact of the Corona virus is yet to be seen. Let’s hope it spares us. Land Link Traffic Systems is poised to review your Coronavirus preparedness with you personally.