What is the impact of the Coronavirus on manufacturing?

This is a major disruptive event with global implications for supply chains. Air freight is already down 50% and we are seeing a backlog of shipping on the Yangtze River. The consequences are already taking effect, as we are hearing that a car plant factory in Germany has had to close because it does not have the raw materials. This is a trend that is likely to continue in the short-term.

Many global companies rely on suppliers in the region. For example, Apple has 290 of its 800 suppliers based in China and the region is responsible for 9% of global TV production. According to DHL’s Resilience 360, 50% of all manufacturing in Wuhan is related to the automotive industry and 25% technology supplies from the region.

The one mitigating factor is that this has happened over Chinese New Year where production is typically down 20% anyway, so companies are already prepared for some fall in output.

Chinese New Year is a known disruption to global supply chains, with employees leaving factories in mid-January, with operations halted between 24-30 January, employees return from the New Year break and operations usually return to normal by mid-February at the latest.

The impact of the Coronavirus is that operations have been halted until the 9^th February in many facilities.

Companies need to urgently review their supply chain to find out how exposed they are. They need to ask the question as to where their suppliers and suppliers’ suppliers are located and review other sourcing locations, which although often more expensive can protect from disruptive events such as this.

We may also see a greater drive towards automation, as clearly with less people working side-by-side in factories, the lower the risk of an occurrence such as this.

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