A 'serious threat'

The outbreak of 2019-nCoV shows little sign of plateauing yet. The numbers of infections and deaths are growing daily, as recorded here. Peter Piot, Director of the London School of Hygiene and Tropical Medicine, is reported to be ‘increasingly alarmed’ by the rapid spread of the virus. Other experts have warned that the UK could suffer a major outbreak.

On 10 February, the Department of Health described the coronavirus as a ‘serious and imminent threat’ to public health, allowing it to apply new powers (in England) to keep people in quarantine to stop the virus spreading. Nevertheless, the official risk level to the UK remains ‘moderate’ according to officials.

The global impact

Beyond the spread and containment of the virus, the impact upon the global economy, particularly supply chains, is raising wide-spread concern. Although China is returning to work today after the protracted Lunar New Year celebrations, the level of manufacturing activity is likely to be severely diminished for some considerable time.

China’s growth might well slow from a reported 6% to 2% or less, dragging down the demand for and price of oil as well as other commodities. The fall in tourism revenue and the drop in the share price of airlines reflect China being the world’s biggest outbound international travel market. Companies that are linked to China’s fast-growing middle class, e.g. Starbucks, Burberry, MacDonald’s, are also vulnerable.

China generates about a quarter of the world’s output. Besides a vast range of consumable products, it is also responsible – together with India – for producing 80-90% of generic medicines used in the NHS. China also has around 80% of the world’s stockpile of rare metals (used in phones and batteries), while it manufactures the bulk of the fashion industry’s summer and autumn collections. Without China’s constant outflow of goods, the rest of the world will begin to see shops empty of certain products and garments – as well as potential customers.  

Protecting supply chains

Supply chains can be expected to be disrupted across the world as a result of the coronavirus outbreak: Goldman Sachs is predicting the virus will cause a 0.4% reduction in the US first quarter GDP figures. In a US presidential election year, on top of potential disease contagion, this could have an impact. Evidence shows, however, that growth does rebound swiftly once an outbreak is contained.

The resilience of supply chains is key to being able not only to survive but also to thrive. Alternative suppliers and manufacturing centres are part of maintaining any major business during disruption. Previous disease outbreaks have taught that entire countries can close their borders in a pandemic (e.g. Mexico in 2009 with avian flu), meaning the rapid loss of stocks and suppliers.

Identifying replacements, ideally in other parts of the world to those in the virus storm, is essential but should be part of routine resilience planning. Redundancy is a key principle of resiliency but it doesn’t come without a cost; this may be well short of closing plants or losing a key supplier, however. For SMEs, the same applies to seeking alternative suppliers in the face of disruption.

Here are some supply-chain actions to consider:

  • Monitor potentially disruptive supply-chain risks.
  • Identify key suppliers in areas affected by any local or national lockdowns.
  • Secure alternative sources and increase inventory levels.
  • Educate internal staff and key suppliers.
  • Draft and test contingency plans for a supplier outage.

A special report by DHL Resilience360 on ‘The Top 10 Supply-Chain Risks stemming from the Coronavirus outbreak’ can be found here. Also, a BCI report in 2019 on supply-chain resilience can be obtained here.