Novel Coronavirus (2019-nCoV) and the Supply Chain

Novel Coronavirus (2019-nCoV) and the Supply Chain

For two decades China has been the engine of the world economy.  The consequences of this have been great for China – and the world.  500 million Chinese citizens have moved out of absolute poverty.  The rest of the world has benefited from cheaper and more abundant goods.

The Coronavirus is not going to stop China’s importance to the world’s supply chains.  But it will have an impact.

The business driver for Chinese goods was initially low costs because of low wages, but those days are over.  Now China is more expensive than other regional producers, and possibly even more expensive than India.  What China now offers is economies of scale, and clusters of expertise in industries such as engineering and ICT.  To make best advantage of that China has its ambitious Road and Belt initiative to make it easier to trade with regional partners through developing transport infrastructure.

The Coronavirus will not interfere with those plans in the long term.  The bans on travel to and from Wuhan region until the contagion is contained will obviously have some impact on trade short term, and the death and illness of so many people is of great concern.  In the immediate days there will be a drop in trade, which may cause problems for some (but relatively few) suppliers dependent on Chinese supplies.  In the medium term there may be a reluctance to source Chinese products because of an unjustified fear that the virus might be passed on by machine parts.

What might be more of an issue is that is will raise awareness of organisation’s dependence on China as a source.  In a world where trade frictions are increasing due to trade wars and tariffs, and where natural disasters (such as the Coronavirus) can cause disruption, considering risk should be a key issue for all supply chain professionals.  This might be a reminder that we should not only look at costs and quality, but also consider what would happen if trade is disrupted (whether by a virus or politics, or a volcano) and factor that into our decision making.  Maybe we should develop contingency plans, and split supply arrangements.  Or focus on closer national or regional suppliers.

China will recover from the Coronavirus, but supply chain professionals should not be complacent and assume that this sort of event will not happen again.  Nor only happen in China, and not India, the EU or the USA.  The long term impact should be the development of better plans to deal with such disruptions in the future.

PetroKnowledge offer training seminar on Supply Chain Risk Management which highlights potential sources of risks, their possible influences and propagation trough the supply chain as well as to plan and implement appropriate actions in order to remove, reduce or mitigate supply chain disruptions.

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