Coronavirus – Is your Supply Chain at Risk?

As Bloomberg recently stated, ‘global supply chains were already under  pressure as a result of the US trade war’. Now, the Coronavirus poses a new and potentially grievous threat.

With 94% of the Fortune 1000 seeing coronavirus supply chain disruptions, we can see why companies are scrambling to get product moving and get visibility on product availability.

The immediate issue is that product is not even available for pick up, due to both factory closures and travel restrictions across regions in China, impacting

 the domestic trucking network. Inbound/outbound freight capacity to and from China is also severely impacted. However, the main issue right now is material supply.

Once these issues start to get resolved, the focus will then switch to availability of capacity inbound/outbound via air and ocean as shippers look to move material to the rest of the world. Air and ocean carriers will leverage the capacity crunch to increase rates significantly. Even at higher rates, strong relationships with the freight forwarders will be required to secure capacity for cargo. Air freight capacity in particular will continue to remain low as most freight now travels in the belly of passenger aircraft and if passengers continue to avoid travel to and from China, this will not be an option.

ReganStein has the expertise to help you work through these issues. We have resources who have strong relationships with the primary freight forwarders and experience working through similar events where unexpected capacity crunches have occurred. Ensuring all your backlogged material ships on time will be extremely difficult and will be at premium rates. We can however, help to minimise the impact. By providing and project managing a structured process, we can help manage the situation, prioritising critical shipments and supplying concise communication and reporting of status for your internal executive team and your customers.

The critical actions to put in place are as follows:

  1. Set up a “War Room” environment (can be virtual) so that supplier communication, status, critical information and executive/customer updates can be co-ordinated and managed in a timely manner. This should include a folder / web-portal that should serve as the single point of information and status update. Assign a dedicated Project Resource to manage the War Room. Limit participants to key contributors but be transparent in sharing status and updates.
  2. Establish daily contact with the relevant Chinese authorities.
  3. Identify priority customers.
  4. Identify key suppliers and freight forwarders you use to support these customers.
  5. Establish daily contact with Account Directors at material suppliers and freight forwarders. Be specific and clear in terms of the detail and format of the information you get from them daily.
  6. Issue a daily update/tracker (Red/Yellow/Green status) with clear status, open actions and projected closure date for each shipment.

What about the longer term? 

The Coronavirus is a very specific event. However, the massive impact should also serve as a very strong data point regarding your reliance on China in your supply chain. Not only in terms of manufacturing and sourcing product, but also in terms of the growing influence and dominance of China in the global supply chain infrastructure, both physical (Belt and Road) and virtual (5G).  In terms of transportation alone, increasingly Chinese carriers (airlines and steam ship lines) are becoming the dominant players in the industry.

We would strongly recommend a strategic review of your supply chain once the Coronavirus situation is resolved.

 

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