Covid-19, the novel communicable disease caused by a strain of the coronavirus, is beginning to have a huge impact on supply chains all over the world. The disease itself first originated in Wuhan, China, but cases of the virus have now been found in 85 countries – with the number of affected regions expected to rise dramatically in the coming weeks and months.
Communicable diseases such as Covid-19 inevitably affect anything to do with transportation, and so the world’s supply chain is unlikely to escape unscathed. But how much will the virus change the way the world transports its goods? And how long can we expect the virus’s impact on the supply chain to last? Let’s take a closer look at what we know so far, and what experts are predicting for the near future.
Shortages of key materials and components
The key concern for any business with a supply chain is, of course, shortages. With many of the world’s businesses hugely reliant on production from China, the financial impact of the coronavirus is already being felt.
A shut down of factories and production plants throughout China’s most affected regions has led to shortages of all manner of different products, with many of the world’s biggest companies taking a hit as a result.
Apple recently announced that it would not meet its target for Q1 of 2020, explaining that “work is starting to resume around [China], but we are experiencing a slower return to normal conditions than we had anticipated.” Automotive giant Toyota too has felt the impact, having experienced supply chain disruption as a result of the virus.
Gaps in supply chain knowledge
Recent supply chain disruptions have brought a common problem to light – the issue of supplier visibility. Very few companies know their entire supply chain inside and out.
The emergence of Covid-19 has shown just how little some companies know about their supply chains, and who supplies the companies that they work with day in and day out. When something like the coronavirus hits and supply chain disruptions are predicted, this lack of information can quickly become problematic.
Michael Essig, a professor of supply management at Munich’s Bundeswehr University, explained that a multinational such as Volkswagen is likely to have 1.25 million suppliers – so of course it can’t possibly establish the identity of every single company in its chain. The calculation was based on the organisations 5,000 suppliers each having around 250 tier-two suppliers.
This calculation clearly shows why companies can’t possibly have full visibility on their entire supply chains, and therefore why they might experience unexpected shortages if the virus continues to spread at its current pace.
Scaled back workforces
The impact of transport restrictions and quarantined areas will be far-reaching, but so too with the effects of a depleted workforce.
Many governments are now urging the public to practice self-isolation if they have been to an affected area, or feel they may have been exposed to the virus. This is already causing an increase in numbers of workers unable to fulfil their roles.
Outbreak-hit countries such as Italy have taken drastic measures, announcing the closure of all schools and colleges until 15th March. The knock-on effect of this will of course be a reduced workforce, as parents who don’t have access to other childcare options will have no choice but to remain at home with their children.
In its latest plans, the UK government stated that up to a fifth of the workforce could be off sick during the peak of an epidemic. So, if the virus spreads as rapidly as many are expecting it to, then the power of workforces will be significantly reduced, and productivity will be diminished.
We’ve talked about shortages in the supply chain, but another effect of the coronavirus that might prove more surprising is softening demand. Whilst demand for some products, such as hand sanitisers, face masks and soaps, are skyrocketing, we’ve also seen a rapid decline in the demand for other, less essential products.
Luxury brands are feeling the hit here, and if the virus continues to spread then we can expect to see the softening of demand for many products continue. It has been predicted that this reduction in demand could cost the luxury goods industry up to $40 billion.
In a statement, Burberry CEO Marco Gobbetti said, “The outbreak of the coronavirus in mainland China is having a material negative effect on luxury demand.” The company has closed 24 of its 64 stores in China, reporting that stores that have remained open are experiencing “significant footfall declines.”
Anxiety over potential shortages has led to scenes of panic buying in affected regions, with consumers stocking up on household goods, food and medicines. Whilst this may be a prudent move for some, it has inevitably caused huge shortages of items that are in high demand all year round.
Panic buying has led to skyrocketing prices, exacerbating anxiety and putting further pressure on stretched supply chains. We’ve already seen reports of face masks being sold for over $100 on ecommerce sites, and markups of disease protection gear topping 582%.
Of course, scaremongering over potential shortages is a huge part of the problem here, so it’s vital that suppliers and retailers do their best to reassure consumers on the continued availability of the products they need.
The world’s supply chain is a well-oiled machine, but it relies on a huge number of different elements working in perfect harmony. With China at the forefront of global production for a variety of materials and products, it’s little wonder that the supply chain is already feeling the effects of the Covid-19 outbreak.
Countries all over the world are now battling to contain the virus, and together with supply chain shortages, these measures are significantly impacting logistics. The numbers of affected countries are likely to rise in the near future, so it’s important that all companies are fully aware of the potential effects of the virus on their supply chain, and ready to make changes to protect themselves from costly disruptions to their businesses.
It’s not all bad news, though. Chinese authorities have recently announced a decline in the numbers of new cases, so it’s entirely possible that the world’s supply chain could start to recover far sooner than has been predicted.
Author: Seb Robert, Founder and CEO of Gophr