CORONAVIRUS MARCH 2020
FACTORY
RESET
With the coronavirus outbreak threatening
to grind global supply chains to a halt, what
can manufacturers in the UK do to prepare?
Localised crises caused by outbreaks of
BY RICHARD WILDING, PROFESSOR OF SUPPLY CHAIN STRATEGY, CRANFIELD UNIVERSITY
coronavirus (Covid-19) have quickly
turned into worldwide problems for
networks of supply chains. Like the
days of the Y2K bug, the 2010 ash cloud
and anxieties around Brexit, a lack of
resilience and agility in manufacturing supply
chains is being exposed.
The road, river and rail blocks in the Hubei
exclusion zone in February led to empty shipping
containers stacking up in Chinese ports. Given
the prevailing flow of supplies, strongly east to
west, that means there were sudden shortages
of containers in other parts of the globe:
products were being made but there was nothing
to transport them in. Entire manufacturing
operations were being stalled by needing to
comply with disinfection regimes. Apple has 290
of its 800 suppliers based in Hubei. The region
is also, for example, responsible for 9% of global
television set production.
A number of European car parts manufacturing
plants have been disrupted because of breaks
in the flow of raw materials
from China. There have been
(unconfirmed) reports of
essential electronic components
such as vehicle key fobs being
transported out of the country
in suitcases by couriers.
The outbreak of Covid-19
in the industrial heartland of
northern Italy demonstrated the
potential of the virus to have an
unexpected impact on supply
chains: a key manufacturing hub
for Europe known for its strong
textile, steel and chemical
sectors was suddenly limited by
restrictions on movement and
the quarantine of employees.
Another implication of
the outbreak is the threat
from ‘supply chain parallel
interaction’ – the disruption
from a seemingly unrelated
supply chain. In this case, it’s
medical face masks or PPE
that is being affected. Due to
the shortages in pharmacies
and chemists, consumers
are reported to be turning to
building hardware suppliers
for face masks and body suits.
That means builders, tilers and
plasterers and other workers
using masks for protection
against airborne particulate
matter are struggling to get
hold of equipment themselves.
Under workplace legislation,
no protection means no work.
Fears of scarcity lead to
stockpiling by manufacturers,
and that has its own longerterm
consequences. Just
small variations in demand
from a customer can result
in large variations in demand
being transmitted up and
down the supply chain. A
cycle of over-ordering and
stockpiling leads to ‘demand
distortion’ and any further
over-ordering contributes to
the amplification. Typically,
a demand increase of 12.5%
will be passed to a supplier as
an increase of 26%, resulting
in that supplier placing an
increased order for their own
supplier of 55% - meaning big
oscillations in inventories and
supplies that can occur for
many months, even years into
the future. This will further
pressurise supply chains,
creating a ‘feast and famine’
situation across the entire
supply chain.
Know your suppliers
Every disruption is different
in itself. Covid-19 has been
an obvious tragedy in terms
of the loss of life, but for
supply chains every disruption
is the same: a test of risk
management processes and
resilience. Manufacturers
need to urgently review their
supply chain to find out how
exposed they are. That means
a clear understanding of where
all suppliers are based, first,
second, perhaps even third tier.
It’s still common for businesses
Aphotostudio /stock.adobe.com
60%
Chinese factories
are running at just
60-70% capacity
Source: Bloomberg; figures for week of 2 March
34 www.manufacturingmanagement.co.uk
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