When China sneezes, the world catches cold.
The uncontained outbreak of coronavirus in China is having ripple effects all around the globe. Not only has it has had a disruptive impact on personal travel plans and social relationships, it has also upended the supply chains in just about every type of industry. That had not been the case as recently as 17 years ago with the outbreak of SARS virus. Since that time, however, manufacturing supply chains have extended all around the globe with China growing into a powerhouse of production, serving a broad assortment of industries and customers throughout the world.
The dependence on Chinese suppliers of raw materials, electronics, garments, medications, component parts and much, much more has expanded along with the nation’s growing reputation for quality control, reliability, and economy. But the dramatic steps taken by the Chinese government to contain the spread of coronavirus have sharply limited the ability of the industries in and around Wuhan – an industrial city of 11 million at the confluence of the Yangtze and Han Rivers – to meet the global demand for its products.
For example, on February 4, Hyundai – one of the world’s largest automakers – announced that it was suspending production at seven of its Korean plants. A major disruption in its supply of Chinese-made parts, resulting from the coronavirus outbreak centered in Wuhan several weeks earlier, had made continued production there untenable. And at least one worker at the Chinese factory of one of Hyundai’s parts suppliers had already come down with the virus, according to the company’s labor union.
Hyundai wasn’t the only automaker affected. Kia Motors, a Hyundai subsidiary, also started scaling back production at two Korean plants. And within Mainland China, various other automakers, including Tesla, Ford, Nissan, Peugeot Citroen, Toyota, General Motors, and Honda have also shut down some of their plants to comply with Chinese government guidelines. And the impact of the export shutdowns spread to other countries and into different industries as well.
For instance, on February 11, Women’s Wear Daily reported that coronavirus had contributed to a 12.9 percent slowdown in goods received at U.S. ports. Fashion shows and related clothing trade events were postponed indefinitely. And Chinese buyers as well as executives are avoiding travel to overseas trade and fashion shows since some of the countries hosting those shows have effectively banned Chinese visitors. China is currently America’s number-one importer of fashion wear, accounting for approximately 30 percent of all apparel shipments into the United States last year.
Another of the casualties hardest hit has been the tech industry – much of which relies on materials and components sourced from China. Roughly half of the world’s LCD panels for TV sets, laptops and computer monitors are made there. Although in recent years Samsung, Google, Sony and others have been gradually moving their smartphone factories out of China and into lower cost countries, those companies still rely on China for many of the components used in their phones. But at Foxconn, for example, only 10 percent of the employees returned to work following the Chinese new year break which coincided with the initial peak of the coronavirus outbreak.
When Hyundai announced it was suspending production, no one understood how far the epidemic would spread, when it would recede, or when the normal delivery of parts would resume. But even though Hyundai had made significant investments in China over a period of several decades and depended heavily on parts imported from there, its investments in advanced technology enabled it to remain agile. “The company is reviewing various measures to minimize the disruption of its operations, including seeking alternative suppliers in other regions,” it said in a statement. “Hyundai Motor will closely monitor developments in China and take all necessary measures to ensure the prompt normalization of its operations.”
In the case of Hyundai, production was particularly hampered by a lack of wiring harnesses – components which the company imported mainly from China, according to the International Business Times. It pointed out that handmade wiring harnesses need to be laid on the floor of vehicles during their initial assembly. But since every car model uses a different wiring harness, they don’t normally accumulate an inventory of them. However, Hyundai’s supply chain radar quickly identified two South Korean harness makers who were seeking to increase production at their factories in South Korea and elsewhere in Asia to make up for disruptions in the supply from China.
Navigating fractured supply chains presents a huge challenge for any corporation. But it is one made more manageable in product-making companies that have implemented smart procurement and supply chain technology to better connect the business processes between them and their suppliers. This may involve digitizing transactions, how its quality is managed, monitoring of risk and performance, managing or preventing disruptions, rapid onboarding of alternative suppliers and much more. Overall, these business process must be digital but also nimble and be supported by technology that is flexible enough to meet changing needs.
Disaster happens – and will continue to happen. Floods, fires, hurricanes, earthquakes, political unrest, labor issues, regulatory changes, trade skirmishes, disease epidemics and more are largely unpredictable, but they are also inevitable. Having the information at hand to avoid being caught off guard and being able to respond in a rapid, agile fashion will remain essential to meeting abrupt supply challenges in today’s volatile business climate.