Coronavirus and its impact on Global Supply Chain & Logistics

By: Krypt Team - February 6th, 2020

Authored by: Vijendra Kargudri

The Pandemic

The America/Australia, Britain/Brasil, and China (ABC) were in global news for various reasons, from tariff/trade wars, forest/bush fires, to Brexit. Just when the Chinese were off to celebrate their Lunar New Year and Britain got busy with Brexit, the world got a rude shock. Within few days of its first outbreak, Coronavirus from the Wuhan region of China has already engulfed 25 countries spreading across 4 continents, affecting almost 30,000 people with around 564 deaths till last reports came in!

With contagion threat looming large coupled with unpreparedness of hospitals to treat thousands of people, the world seems to have imploded! Flights from all the countries to and from China have been cancelled. The entire EU, except France, has shut entry to Chinese nationals. The same holds true about all Asian countries sealing their borders and barring entry to the Chinese nationals along with cancelling visas of existing visa holders to their nation. Every country has got busy extracting its nationals stranded in China to its safe shores.

Impact of the contagion

Wuhan in Hubei province in central China, is the epicenter of the virus outbreak and has turned into a ghost town. Hubei province is home to 60 million people, 11 million of them live in Wuhan. Around 500 factories with their supply chain & logistics from the US, European, Japanese car makers, & electronics suppliers have origins in Wuhan.

The aftermath of the contagion has resulted in China sacrificing its Hubei province by land-locking it from rest of China and the world! All passenger and cargo flights out of the region have been cancelled, just few inbound flights bringing in critical medical supplies are permitted. Even the operations at Wuhan’s Yangtze river port handling close to 1.5m TEU cargo stand suspended.

The Chinese population forms the biggest chunk of global tourism. Quarantining their population has hit the global tourism & travel market. Manufacturing units in China have closed indefinitely and as such the global stock markets have tanked & shown volatility.

Major impact on supply chain & logistics

Over the years majority of the manufacturing sector has relocated its manufacturing & ancillary units to China to cut costs. With the spread of the virus many employees have been forced to go on leave and this will affect an array of such units across the sector.

Tim Cook, Apple’s Chief executive is frantically working on “mitigation plans” to make up for any production loss from its suppliers – Foxconn in China. Similarly, Starbucks with more than 4,000 outlets in mainland China is staring into unfolding of an unforeseen situation. Even fast-food chains like McDonald’s and Domino’s are exposed, as a percentage of their global revenues is in China.

China is a leading producer of active pharmaceutical ingredients that are repackaged by Western drug companies into many life-saving treatments. Banning their movement will have impact on the health sector.

Similarly, major automakers – General Motors, PSA, Renault, Nissan, Honda, Toyota and even Tesla who have all adopted Wuhan and China as a base for joint car making ventures, are in the immediate firing line. Global investors are jittery as a June bug over this health crisis and its broader economic impacts on trade markets.

Wuhan and China being quarantined by global countries, will have see many warehouses with piled up inventories, a wide chasm getting created between the global demand and supply. All this will have an inevitable ripple effects on supply chain & logistics around the world.

With prolonged disruption it is difficult to predict the exact consequences of Coronavirus. Global businesses will see impact on the following components across the supply chain & logistics including:

Materials: Shortage in supply of materials or finished goods coming from or routed through logistical hubs in China
Labor: Labor force will be forced to go on leave from work due to strict quarantine guidelines, affecting the day-to-day work
Sourcing: Travel may be restricted to Chinese territories, limiting the ability to discover, qualify & certify new business opportunities
Logistics: Established hubs & supply networks running deep into the Chinese territory will experience limitations in capacity & availability of assembly line materials owing to limited alternative routes & means of transportation
Consumers: Consumers cautious of getting exposed to the virus will resort to online purchases, which will challenge established logistics networks.

How can Krypt help?

Krypt as an SAP preferred partner has helped global businesses across industries implement SAP GTS, TM, IBP and EWM to be compliant and improve their bottom line.

In all probabilities, every business supply chain & logistics operations will need to tread the coming days with utmost care. Krypt can help businesses across industries to take necessary precautions by –