The Coronavirus presents us with one of the first global challenges of the ’20s. Resources are being spread thinly as people try to mitigate risks and carry on with business as usual where possible. Questions about the viability of keeping schools open and whether non-urgent treatment from hospitals should continue amid the outbreak are rife.
The government published an action plan document of what actions the UK government might take as the Coronavirus spreads. Despite the details given in the document, it is pretty restrained with giving any weight to possible outcomes. Instead, business as usual with more hand washing appears to be the general mantra for most.
However, ‘business as usual’ for many businesses impacted by COVID-19 seems far from reality.
Procurement is an essential aspect of many businesses operations. Without it, business can stall altogether.
For many of us, our supply chains include overseas suppliers, including Chinese manufacturers, who have taken a significant hit from the virus. In one survey, 62.5% of companies claimed that they’d seen demand decrease from China since the outbreak.
This is bad news for any business that is heavily reliant on Chinese suppliers, and there are some big companies that are making a loss because of the problem.
What Big Businesses Are Struggling?
Apple– Apple manufactures most of its product in China because the cost of manufacturing is low, and efficiency is (usually) high. However, amid the Coronavirus outbreak, Apple was forced to close down its Chinese factories. While work is slowly getting back underway, Apple announced that it wouldn’t meet its Q1 revenue target.
McDonald’s– Around 300 McDonald’s restaurants in China were closed at the end of January to mitigate the spread of the virus, and 3000 remain open in the country, McDonald’s CEO, Chirs Kempczinski, described the implications of the virus ‘fluid and concerning’, denoting the overwhelming uncertainty of the situation.
Burberry– The luxury fashion industry has certainly been struggling over the last few weeks due to the Coronavirus. During the time of year where fashion houses, big and small, showcase their latest collections, many have cancelled shows altogether. The problem is even bigger for Burberry, who has closed over a third of its stores in China. The losses quickly add up, and it’s projected that the virus could result in over a $40 billion loss within the luxury sector.
What Can We Learn From Past Problems?
There have been many comparisons drawn between the current COVID-19 virus and SARS, both of which are a form of Coronavirus.
Avetta has even released a document called ‘Supply Chain Lessons Learned from the Coronavirus and SARS Outbreaks’. This covers various areas of how supply chains can react to the challenges thrown up by COVID-19, some of which includes:
- A review of what was learnt from SARS
- Sustaining business during the fallout
- How to contain the spread
- What suppliers can do to combat the virus
In comparison to SARS, the COVI-19 Coronavirus has had much more impact on the economy, partly because China is a much bigger global player now than it was back in 2002 when SARS broke out. Additionally, COVID-19 has already significantly exceeded the death and infection rate.
However, those businesses that put risk mitigation measures into place following SARS are likely fairing better than the businesses that simply ‘forgot’ about it.
Going forward, businesses reliant on international supply chains or manufacturers need to learn from COVID-19 so that if and when another infectious disease becomes a big problem, businesses will know how to react appropriately, having taken the correct proactive measures prior to another outbreak.
In terms of retrospective action, there’s little that can be done other than following official advice and basing business decisions off the available facts.
Supply and demand are not reaching their usual level. As a result of the Coronavirus, around 22% of companies have experienced a supply impact, and 37.5% of CFOs claimed it was too soon to know if it will get any worse.
As part of risk mitigation for the future, businesses ideally need to map their supply chains from end-to-end. Through this method, it’s easy to see exactly who your suppliers are past the first tier and whether you’re relying on a single supplier for a critical component of your procurement.
If a single supplier collapses and you or your immediate suppliers rely on them, they have the potential to bring your whole operation to a halt.
By managing your relationships with your suppliers better (SRM), you should be able to foresee these problems and mitigate them.
While there is little businesses can do to control external risks such as the Coronavirus, there is plenty that can be done to minimise the risk. If you take the right action now to map out and understand your supply chain, and improving your SRM and risk management off the back of that, when we find ourselves in a similar situation again, you have already taken proactive measures.
The great thing about having a clear view of your supply chain is that it doesn’t exclusively tackle risks like infectious diseases, it improves risk in a wide variety of external and internal factors, that in turn improves your overall procurement processes.
Has the Coronavirus impacted your business? We’d love to hear your thoughts and experience.