As trade talks between the United States and China dragged on last year, organizations spent much of that time analyzing their supply chains and making contingency plans to avoid any long-term disruption and mitigate business risk. But with the coronavirus outbreak, firms across the globe face a whole different level of challenges.
Experts say the critical difference is time—or lack of it. It’s only been about a month since Chinese researchers first identified the deadly respiratory illness that has so far infected more than 43,000 people and claimed the lives of more than 1,000 people in 25 countries. “When something like this happens, it’s all about how quickly you can react,” says Kent Brown, North American practice leader for Korn Ferry’s Supply Chain Center of Expertise.
The speed and agility with which organizations react can be the difference between losing millions and tens of millions of dollars—particularly in a country like China, where every global company has some operations. Already, Apple, Starbucks, and Ikea have temporarily closed stores, while automakers have delayed production and airlines have canceled flights to the country. The closer operations are to the Wuhan/Hubei region where the virus originated, the deeper and more costly the impact, of course. "Most companies were not prepared for such a nationwide shutdown for this long," says Diana Chan, leader of Korn Ferry's Global Industrial Markets practice in Greater China.
Brad Marion, global leader of Korn Ferry’s Automotive practice, notes that automakers and suppliers strive to have a footprint and revenue mix that matches regional market share. With China now representing 30% of the world’s automotive market, that would mean most automakers would hope to have approximately 30% of their corporate revenues based in China, says Marion. “The impact the coronavirus will have on the Chinese economy is of great concern to many in the automotive industry,” he says.
The sudden halting of travel into and out of China also means leaders have limited opportunities to source alternative partners, says Mehrab Deboo, a senior client partner with Korn Ferry’s Global Supply Chain Center of Expertise. He says shipments will be delayed as organizations scramble to reroute or find alternate routes for cargo. “The full affect of the virus won’t be known for months, but it is going to test the adaptability and nimbleness of supply chains for multiple global industries,” says Deboo.
That's why, says Brown, in times of sudden disruption, risk management becomes very important. “What kind of exposure does a company have, how close to the source is it located, when might the ban be lifted?” says Brown. “You have to figure out these logistical questions and manage from there.” From an inventory standpoint, identifying factories and warehouses that can take on additional capacity, accelerate production, or source components is critical. But that’s a luxury for some organizations—others are too small to have multiple warehouses or suppliers they can switch to in an emergency. As US-China trade issues flared up in 2018, many companies started expanding their manufacturing footprints to Vietnam, Thailand, and Malaysia, which helps mitigate certain risks, Chan says.
While some have drawn comparisons between the coronavirus outbreak and the SARS epidemic of 2002, there is one big difference for business operations: a lot more data analytics are available now. Leaders can track the coronavirus’s impact across a range of data points to better forecast risk and response for the next outbreak. In the absence of clairvoyance to predict the next major epidemic, “leaders can look at the numbers and put in algorithms to mitigate the effect,” says Brown.