Standing still is not an option for an industry renowned for innovation. Companies can still take steps to mitigate the impact of the outbreak.
The 2011 tsunami in Japan was one of the forces behind the electronics supply chain’s dedication to resilience — the ability to shift all or part of a supply chain as needed. That means people, materials, manufacturing lines, suppliers and even physical processing and aid centers. Global businesses now have entire departments dedicated to business continuity.
Nevertheless, experts predict the supply chain disruption from China’s coronavirus outbreak could last three to six months. The city of Wuhan, ground zero for the outbreak, is an important, global economic hub. Wuhan’s GDP reached $213 billion as of 2018 as the region moved to high-end manufacturing — everything from chip making to biomedicine, according to Bindiya Vakil, CEO of supply chain solutions provider Resilinc. Half of the Fortune 500 businesses have operations in that region.
“Optoelectronics, semiconductors, chemical, life sciences and many of China’s advanced chip manufacturing plants are in Wuhan,” Vakil said on a recent webinar. “We do expect NAND flash memory to have capacity constraints, and there are other notable manufacturers such as Foxconn and Jabil there.”
Complicating matters is the celebration of the Chinese New Year, during which many businesses scale back production. The Chinese government has extended the normally two-week holiday by at least another week.
“Predicted supply chain disruption is one thing, but unexpected [disasters] with no clear light at the end of the tunnel is quite different,” one source told EPSNews. “We’re hearing about shortages in semiconductor materials already, about people trying to shift production at short notice. This is a prime example of the need for a robust and agile supply chain with a digital thread, so you can see in real time what is going on.”
The most optimistic forecasts predict “normalcy” returning by April.
What businesses can do
A Harvard Business Review Analytic Services (HBRAS) study commissioned by Basware found that businesses worldwide lack transparency in their supply chains.
The majority of the 800 business leaders surveyed (60 percent) warn that poor visibility of who they do business with is a significant source of risk. Nearly a quarter (24 percent) admit they fail to effectively evaluate supplier business practices, with 45 percent citing manual processes that lead to incomplete data entry as a key cause.
Standing still is not an option for a technology industry renowned for innovation. Resilinc and other supply chain consultancies emphasize advanced planning as the basis of a resilient supply chain. If that hasn’t taken place, companies can still take steps to mitigate the impact of the outbreak, according to Resilinc:
Global logistics providers such as DHL have been working on disaster-management plans for years. The supply chain’s sphere of influence ranges from individual package delivery to materials flow into factories. But customer-facing organizations are on the front line when something goes wrong.
DHL’s Resilience360 visibility platform also offers recommendations to help supply chain managers mitigate further disruption to their operations:
“Two crucial mechanisms will decide the economic impact of the coronavirus: scope and uncertainty,” said Patrick Gourley, Ph.D., assistant professor of economics in the University of New Haven’s College of Business. “The first is straightforward. China is the key player in the international supply chain for thousands upon thousands of goods. ‘Made in China’ has become so ubiquitous it is the expectation for many of the durable products American consumers buy on a daily basis.”
The quarantine over the Wuhan area in China has the potential to disrupt many of these supply chains depending on its geographical size and duration, he added. The second, and more nebulous concern, is uncertainty in the financial markets.
“Thus far, China appears to be more forthcoming than they were during the 2002 SARS outbreak,” said Gourley. “The genome of the coronavirus has already been sequenced, and China has learned that cooperation and transparency are in their long-term interest. At the same time, there is still a question of how transparent China is willing to be. Until the disease appears to be waning, financial markets may pause, especially regarding companies that depend on China for production.”