Going viral: Re-examining risk in global supply chains
The coronavirus or the COVID-19 outbreak, with 1,776 deaths and over 71,444 reported cases (and counting), has become a major concern. The virus has joined the growing number of unpredictable and invisible disrupters like Zika, H1N1 and SARS that are increasingly taking human life and disrupting global manufacturing and commerce.
Airlines have been announcing cancellations of their flights to China; ships with flat screen TVs, smartphones, solar cells, shoes, clothes, etc., are not leaving ports in China; businesses are calling off travel plans, conferences, exhibitions and meetings; and even the seemingly reliable supply chains of pharmaceutical, automotive and electronics manufacturers have been impacted. Apple told its investors that shipments of their iPhones would be down 10% in the first quarter of 2020 due to the virus; automakers across China are turning off the lights on their production lines and even auto major Hyundai in South Korea has been forced to shutter down due to a parts shortage; giant toy maker Hasbro, that announced major Q4 earnings for 2019 at the end of holiday season, saw its stocks drop dramatically due to the predicted impact of the virus. According to analysts, there are at least 51,000 (163 Fortune 1000) companies around the world that have one or more Tier 1 supplier in the Wuhan, Hubei province, and at least five million companies (938 Fortune 1000) around the world that have one or more Tier 2 suppliers there. The impact is going to be massive.
While economists and businesses work to arrive at a complete picture of the likely chaos the virus will cause, businesses need to act quickly and decisively. There are several questions they need to be answered:
- How long will their current inventories (of components and products manufactured in China) last?
- Which are the production units, warehouses and distribution centers that need to be closed to contain the risk?
- What are the alternatives available to businesses?
- Where can they shift sourcing to? How quickly?
- Where can they move their productions to? Who will they need to partner?
- Where can the new warehouses/distribution centers come up while minimizing vulnerability to the virus?
- How can they, practically overnight, re-shape their logistics and operations?
- What will be the impact of the corona virus on bottom lines, market share and employee wellbeing?
These are difficult questions to answer. Businesses are not equipped to respond to these extreme levels of disruption. They do not have models and analytical engines that can quickly predict, plan and act based on such “what if” scenarios—they just don’t know where alternate suppliers, production facilities and warehouses are located.
This episode of the epidemic brings into sharp focus the need to re-examine risk in supply chains. Today’s businesses need systems that know exactly where the second line (and even third line) of suppliers are located and have a finger on their production capabilities at all times; turn existing supply-centric models inside out; be flexible enough to switch to demand-centric models; design and build capabilities that allow the second/ third line of suppliers to access data and forecast demand in near real-time.
The central problem is that supply chains have become global and unimaginably complex. The solution is to build systems that can manage increasingly larger volumes of data that impact business and apply sophisticated statistical methods and analytical models to continuously reshape frontline operations, supplier choices, logistical options and production opportunities.
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