David Shillingford, chairman of Resilience360, discusses the impact to date of the coronavirus pandemic on global supply chains, and offers advice on how companies can protect themselves against future disruptions.
SCB: What has been the impact of the coronavirus on supply chains to date?
Shillingford: One of the most notable things about the impact so far is that it has affected demand as well as supply. We've seen shops in China being temporarily closed, which has a larger impact on the global economy, particularly if you think about luxury goods retailers and the amount of money that’s spent by Chinese tourists throughout the world over a given year. Beyond that, we're starting to see other demand patterns changing, whether it's a move to omnichannel in certain aspects, or a response to supply interruptions at the factory or port. Both on the demand and supply side, the disruption has already been quite significant.
SCB: We’ve also heard of factory closures in other countries such as South Korea, because they can’t get parts and raw materials.
Shillingford: The impact in other countries is either because raw materials aren’t available, or because there were concerns about the safety of workers as the virus spread beyond the borders of China.
SCB: Raw-materials production continues in some places around the world, but there's no market for it because the factories are shut down, thereby causing prices to drop globally. Is that another side effect?
Shillingford: It is. The interconnectivity between demand and distribution networks, as well as raw materials and product assembly, means that when any of those links are disconnected, the impact will be felt elsewhere.
SCB: How are people and businesses coping with this?
Shillingford: Different companies are reacting in different ways, either because of the size and shape of their supply chains, or the way they were able to prepare in the months and years leading up to it. Some companies are simply better prepared than others.
SCB: How much worse can it get, and what might be the future impact?
Shillingford: It’s certainly far from over. It seems there’s a level of containment within China, although what will happen remains to be seen. Countries that were relatively well prepared had the benefit of having seen what happened in China.
SCB: We had the SARS outbreak in 2003, then the tsunami in Japan and floods in Thailand in 2011. One would think those events would have served as a lesson to companies to shore up their supply chains to become more resilient, to pay more attention to risk management. Did that happen?
Shillingford: To some extent. The tsunami and extensive flooding in Thailand certainly brought this to the attention of numerous companies. In that case, Thailand was very concentrated around the high-tech industry, particularly semiconductors, and in Japan the automotive industry felt the most impact. Both industries have since done a lot to get better visibility to their extended supply chains, and be monitoring risks in real time. Other industries, less so. With respect to size, it’s likely that the lessons that come out of this and the impact felt by companies and their supply chains will be much greater, simply because China's role in the supply chain and world economy is quite different now than it was in 2003.
SCB: Going forward, what advice do you have for companies looking to becoming more resilient and pay greater attention to risk management?
Shillingford: In the future, the companies that react best to incidents like this will be those that have taken the time and effort to map out their extended supply-chain networks, then to use technology to understand what is the risk within those networks. As a result, mitigation and planning can take risk into account, and they can be monitoring events around the world. It takes time for the full impact of an event to flow through the supply chain, but there are always things that can be done, even after the event happens, if it’s known about quickly, and the right plans are in place.
SCB: But memories can be short. Maybe now is the time for executives to accept the additional cost required to create these diversification programs — to study mapping and the supply chain. Whereas a couple of years from now, when things have settled down, maybe they won't be paying as much attention to it.
Shillingford: I think that's right. There’s always a wave of interest around the processes and technologies that can mitigate these types of risks. What’s different this time is not only the magnitude of the event, but also the availability of technology for risk management. More and more, we’re seeing predictive analytics become embedded into supply-chain management operations. That can increase the optimization of supply chains on a day-to-day basis, not just when something big happens.
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