Businesses ‘must build resilient supply chains’ as coronavirus impacts global trade

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As the coronavirus continues to spread around the world, an impact on global supply chains is inevitable – but how just how badly will the business world be affected?

Some 26 countries – including the UK, USA, Japan, Germany, South Korea, India and Russia, in addition to China – have now confirmed cases of the disease within their borders.

China alone now has more than 24,000 confirmed cases – a number which grew by nearly 4,000 yesterday alone – and death tolls now stand at nearly 500.

And with travel restrictions now in place in many areas, and China an increasingly powerful influence on the global trade scene, supply chains are beginning to face disruption as a result of the outbreak.

Apple’s assembly partner Foxconn has, for example, closed its Chinese factory. It will not reopen for at least another week, and production – and availability – of iPhones is likely to suffer.

Experts are now warning further businesses may soon be affected more than people realise because the global supply chain has become so intertwined and China’s role in it so crucial.

As a proportion of global GDP, the Chinese economy is four times bigger than it was during the SARS outbreak of 2003, so the impact will be much more significant.

Alejandro Alvarez is the Operations Performance Partner at Ayming, a consultancy which specialises in supply chain and operations performance.

He said: “When it comes to supply chains, the ripples of the coronavirus are only just emerging.

Alejandro Alvarez, Operations Performance Partner at Ayming.
Alejandro Alvarez, Operations Performance Partner at Ayming.

“Companies are working on their risk assessment plans, but, in reality, how many businesses can trace all their supplies to source? It’s very difficult to get a full grasp on the matter and many companies could be underestimating their exposure.

“Global supply chains have become incredibly complex and the Chinese economy plays an extremely important role in the global economy so there may be some unpleasant surprises in store should import restrictions and containment efforts escalate.

“For example, a UK manufacturer who imports a certain component or material from abroad might not know the origin of that component – it could easily be from China.”

Koray Kose, Senior Director Analyst at Gartner, a US-based advisory company with a leading supply chain department, agrees the impact is hard to predict – and could be felt in the medium and long-term.

He said: “The consequences of a pandemic event are hard to predict. The full impact of coronavirus on supply chains might not become obvious until sometime in the next few months and beyond.

“However, the risks always exist and are augmented with further globalisation and integration of supply chains.

“It is not a matter of if it will happen but to change the focus to be prepared when it happens. That is a shift of mindset in risk management and business continuity.”

Alvarez says businesses can – and must – learn from the disruption to safeguard against risk by diversifying their supply chain.

He added: “However, this outbreak actually provides a valuable lesson. As it stands, most businesses are far too dependent on one or two main sources for their supplies.

“Companies must learn from this and build resilient supply chains by diversifying their sources. If a business has a number of suppliers for the same product, they have an insurance policy should things go wrong – and, clearly, things do go wrong.”

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