11 Mar How Coronavirus is affecting the global supply chain
Global supply chains are suffering from coronavirus and UK businesses are not immune.
Over the last few decades, the way in which we do business has changed considerably. The world in 2020 is a highly-connected, modern and globalised one. But could the minuscule 2019-nCoV virus put an end to it?
Manufacturers around the world, especially those who rely on China (the source of the outbreak) for its supply of components and materials, are being hugely affected. Including UK ones. But how badly? And is the worst still to come?
From mobile phones to cars, is nothing safe from coronavirus?
One of the first big manufactures to warn of a sales short fall due to the virus was Apple. Despite some of their manufacturing facilities in China re-opening, they are ramping up production slower than expected, meaning fewer iPhones for sale around the world. But that’s not all. Some of Apple’s retail stores in China, the country that contributed 15% of its revenue last quarter, remain closed or are operating at reduced hours.
Other major manufacturing companies that have already suffered include Fiat Chrysler Automobiles NV who said it was: ‘Temporarily halting production at a car factory in Serbia because it can’t get parts from China.’. And Hyundai who decided to suspend its production lines from operating at its plants in Korea, ‘Due to disruptions in the supply of parts resulting from the coronavirus outbreak in China.’.
Which businesses will feel the most pain?
According to Harvard Business Review, the peak of the impact of coronavirus on global supply chains will occur mid-March. And it’s the companies that rely heavily on parts and materials from China that will be hit the hardest.
Michael Owen, Managing Director at Cirro Solutions commented: ‘There are countless UK engineering firms and manufacturers that buy a lot of their components from Asia, specifically China. But there isn’t much you can do in terms of diversifying your supply chain to a point where you’re OK. What’s more, it only takes a single component to become unavailable, and the manufacture of a particular product is completely halted.
‘Nobody has really planned for this. And nobody really knows how badly their business will suffer. One thing is for sure though, the cost of components will rise. But to what extent is still unclear.
‘Most UK business will be hit by coronavirus. Particularly the smaller ones, as they don’t have the buying power and it will be the big companies that get first call on the components that are able to be manufactured.’
Passing on the effects of coronavirus to most UK businesses.
Even if you’re a UK business without a global supply chain, you’re unlikely to escape the knock-on effects of the virus.
Imagine a businessperson cancels a trip to Hong Kong and replaces it with a video conference. Understandably the airline and Hong Kong hotel are big losers. But think about the taxi they’d have booked to take them to the airport from home. The hotel near Heathrow they’d have stayed in to catch their early morning flight. The duty-free shop they’d have bought a gift from. The coffee they’d have purchased in the departure lounge. And so on.
We have seen this happen already, the fragility of some businesses with such fine margins means they simply can’t cope with a drop in demand, like the airline Flybe collapse, shortly after the virus began to spread internationally.
There are many businesses touched by this one decision caused by coronavirus. And this kind of decision is being made by countless people and businesses in the UK every day.
What’s more, this is just one example. The EU’s industry chief said the European tourism sector was losing around €1 billion a month because of the virus. London attractions and related businesses will be included in this. Then there’s things like sports events being cancelled. Obviously the stadium loses out. But so too do the local bars, hotels and cafes. Even the guy selling team scarfs on the corner dips out.
A less healthy supply chain – literally.
It’s not only UK businesses that are at risk. Our nation’s health is too. Not just the people that contract coronavirus either.
The supply chain of medical equipment and medicines is not resistant to the virus. Especially as so much comes from Asia. From disposable gloves to syringes, everyday items doctors and nurses use to take care of people could soon become in short supply.
In the UK, we’re fortunate enough to have the NHS. Other countries don’t have a medical service that’s free at the point of use. But if the NHS doesn’t have all the equipment it needs to effectively treat patients, more people are likely to become ill.
Other victims of the coronavirus.
The virus has also already had a huge impact on the global financial markets. All of them are down, with the US suffering their worst week since the global financial crisis of 2008. On 28 February 2020, the three main US indexes were down 10% or more on the previous Friday, while London’s FTSE 100 index was down 3.2% for the day.
Towards the end of February, shares in firms like Nike, Apple and Walt Disney, which rely on China for goods and do major business there, fell by nearly 4%. Yet they weren’t the biggest losers. Travel companies were hit really hard, with the likes of EasyJet down 16.7%.
Distribution and logistics firms have inevitably been hurt too. If the original components aren’t being manufactured, there’s no call for them to be transported. And once again there’s a knock-on effect. It starts with the large, global air, sea and land distribution companies, and ends with the small road haulage firms, including UK ones, that deliver to the final recipient.
We’ve seen a 20% drop from 383 to 310 in the All-World Index, in a single month, from 11th Feb to 11th March
Bad for humans, good for the planet… and some businesses.
With all the deaths, disruption and pain coronavirus is creating, it’s hard to believe any good can come from it. Yet, as people aren’t travelling as much, especially by air, and with some of the world’s biggest polluting factories closed, carbon emissions have been reduced. By as much as 25% in China.
Some businesses are benefiting too. If you make hand sanitiser, you’ll be rubbing your hands with glee. Providing you can distribute it of course. Likewise, businesses such as Zoon and Visionable who operate video conferencing solutions, have capitalised from the outbreak. So it’s not all doom and gloom for everyone.
Businesses survived the SARS outbreak, so surely they can quickly recover from coronavirus?
In 2002/2003, the SARS epidemic was a mere blip on the financial markets. But things have changed since then. Primarily the world’s reliance on China.
Over the last 18 years, China has doubled its share of trade with the rest of the world. Or another way of looking at it, in 2003 China’s GDP was 4.31%, prior to the coronavirus outbreak it was about 16%.
With the Chinese government putting almost half its population in quarantine, it’s no surprise Chinese manufacturing, and ultimately global supply chains, are being hugely impacted.
Prepare for the worst, hope for the best.
Regardless of what your business does, and whether you’re dependent on a global supply chain or not, it’s worth taking steps (if you haven’t done so already) to minimise the impact the coronavirus will have on your business.
Whether that’s sourcing components from another supplier. Creating remote work stations for your employees. Arranging car pools in case public transport is disrupted. Or ensuring you’ve got a reliable video conferencing system in place. It’s best to do as much as you can, as early as possible.
The UK Government has released guidance for employers and businesses about coronavirus, which you might find useful, or full Government details including travel can be found here
Has coronavirus killed the way we currently do business?
Unfortunately, none of this is scaremongering. This is fact. Supply chains around the world have suffered greatly due to coronavirus. And UK businesses are too. Even those outside the manufacturing sector. And things are likely to get worse, before they get better.
As our world became highly connected, the way we did business evolved. But is coronavirus set to revolutionise how we do business in the future?
At Cirro Solutions, we’d be interested to know how your business has been affected by coronavirus so far. And how you think it will change it moving forward.