There are many known risks to global supply chains. War, civil unrest, extreme weather, and natural disasters top the list. Now a new coronavirus strain, dubbed COVID-19, has added pandemic to the list. Even if your products are locally manufactured, using only locally-sourced materials, your business will probably feel the effects of the coronavirus.
Initially, the new virus only infected people living and working in the Wuhan region of China. Even if it had stayed localized, however, an epidemic would have disrupted global supply chains. After all, many businesses rely on goods and parts manufactured in China. However, we live in an interconnected world. That makes it almost impossible to completely stop the spread of a virus like COVID-19. It has become clear that the outbreak will not be confined to one country or one continent.
This coronavirus outbreak is on a path to reach pandemic status. Here’s what you need to know to protect yourself and your business.
What Is the COVID-19 virus?
The coronavirus family of viruses produces a range of illnesses. The common cold is caused by a type of coronavirus. SARS and MERS, two viruses that caused dangerous outbreaks in recent years, belong to this family of diseases. Coronaviruses infect both humans and animals. COVID-19 first appeared in humans in Wuhan, China, in late 2019.
What makes the COVID-19 virus especially dangerous is that it appears to be very contagious. In addition, it may be many times more lethal than the flu. (Note: mortality figures are preliminary and may change.) The actual spread of the disease will combine with panic about its spread. These factors can lead to major disruptions in commerce.
The definition of a pandemic
An epidemic is a widespread outbreak of an infectious disease in a country or globally. To be called a pandemic, the disease has to lead to death in some patients, be transmissible from human-to-human, and spread globally affecting large numbers of people around the world. Global health leaders have been reluctant to call the current coronavirus outbreak a pandemic, because it hasn’t met the last criteria of wide global spread. However, the virus appears to be easily transmitted among humans. Every day, the news contains reports of additional cases and outbreaks in new locations. By the time you read this, it may meet the pandemic classification.
Update: On March 11, 2020, the WHO declared the coronavirus outbreak a pandemic. It has now spread to all 50 US states. See below for resources to stay up to date on the latest news about the spread of the virus and efforts to contain it.
During the 1918 Spanish flu pandemic, the rhythms of daily life came to a halt or were greatly altered around the world. People were afraid to gather in public. Shops and schools closed. Some churches held services outdoors to reduce the chances of spreading the virus.
We have already begun to see similar effects today. At the center of the outbreak, Wuhan, China, has been all but shut down by a community-wide quarantine. Tourists have cancelled travel plans. Chinese travelers, who are responsible for a large portion of worldwide tourist spending, are remaining in China. To avoid large gatherings, organizers are cancelling events, from conferences to art fairs. More disruptions may follow as the disease spreads.
An epidemic in China upends global supply chains because so many of them run through China. A pandemic will be even more disruptive. As the disease (or fear of the disease) becomes more widespread, people will stay home. It doesn’t matter whether this quarantine is self-imposed or government-ordered. In either case, it could mean reduced demand and disrupted transport operations.
The Interconnected World of Global Supply Chains
Even if your supply chain doesn’t pass through China, it can be impacted by the shutdown of Chinese factories. Some of your suppliers may rely on materials, products, or equipment from Chinese suppliers. In addition, as the coronavirus spreads to more countries, the effects on supply chains will grow.
The problem doesn’t just rise out of shuttered factories. Truck drivers may not be able to travel through quarantined regions. The container ship traffic that moves goods to and from ports around the globe has slowed to a trickle. The movement of products and raw materials has slowed.
The issue won’t start to affect US consumers and businesses until current stocks become depleted. However, because of lean manufacturing processes and just-in-time stocking, shortages could appear in weeks rather than months.
What Kinds of Businesses Will COVID-19 Affect?
But the disruption to travel and supply chains affects smaller companies, too. For example, one startup let its Indiegogo backers know that initial product shipping would be delayed. This was partly due to extended factory closures in China. In addition, the company couldn’t get its US personnel in to oversee production. They are stuck until normal travel into China resumes.
Your supply chain may be affected in ways that will surprise you. It’s hard to know in advance which regions and industries will be hardest-hit by the coronavirus. However, you can prepare your business. By anticipating potential effects on your operations and taking steps now, you can minimize any disruption.
The COVID-19 virus has arrived at a time of unprecedented movement of people and goods around the world. Here are some of the ways the disease outbreak may affect the operations of US companies.
Delays in production
Factories that produce components and finished products may face extended shutdowns. Even if factories reopen, they may not have a full staff. Some workers have not been able to travel back to work in China. Others may find themselves stuck in quarantined because they have tested positive for the virus. Expect production delays if you work with factories in affected areas.
Even if your shipment is ready, it may not be able to leave the dock or airport. Travel in and out of regions where the outbreak is centered may be slowed. This may be necessary to slow or prevent the spread of the virus. The virus will also affect the movement of ground transport.
Higher prices for raw materials and finished goods
The first item to see a price rise, not surprisingly, has been surgical masks. However, the coronavirus could grow into a pandemic that lasts for several months. In that case, you may experience shortages of materials and products in your supply chain. Your business will have to compete with others for a smaller pool of goods. This could drive a spike in price.
In a worst-case scenario, your US operations may be affected. The CDC is already urging businesses to give employees more opportunities to work remotely. This is important to prevent the spread of the disease. However, some jobs can’t be performed by laptop from home. Assembly, fulfillment, and logistics may be interrupted if employees aren’t able to go to their work sites.
The one bright spot in this viral outbreak is eCommerce. When people can’t congregate in public places, they can still shop online. In addition, streaming entertainment and food delivery services make it easier to stay apart from others during a pandemic. And, fortunately, it’s very unlikely that customers could catch the coronavirus from a box or package they order online.
While the stock market has tanked at the prospect of a pandemic, some stocks are doing well. They are for so-called “stay-at-home” companies. These are businesses that cater to people who need to stay in. Online shopping sites and remote conferencing companies are doing well in a moment when people are spending more time in their homes.
There are several ways to mitigate your company’s exposure to disruption from a pandemic. While some of these strategies are more long-term, you may be able to implement some protective changes on the fly. Here’s how to keep your business resilient in the face of a global pandemic.
Start planning now.
Don’t wait until your supply chain hits a snag to start making contingency plans for your inventory. If you don’t need them now, they’ll help you when the next disruption hits. In addition, don’t imagine that the worst can’t happen in the US. Experts are warning that it’s a question of when, not if, North America will see the spread of the virus. Take the time to make plans before you and those around you are in panic mode.
Diversify your supply chain.
Where possible, use more than one supplier for raw materials and finished goods. When you do this, you increase the likelihood that one or more of your suppliers will have uninterrupted operations.
Outsource your fulfillment to multiple warehouses.
Ship your products through more than one fulfillment center. This increases the chances that your fulfillment operations can continue with minimal interruption. Even if one regional fulfillment warehouse is forced to close temporarily, others may remain operational.
If possible, keep extra stock on hand now in anticipation of future supply chain disruptions. There is a cost to carrying and storing extra stock. However, this could be a wise investment in a time of crisis. If you’re the only one with stock as warehouse and store shelves empty, you’ll be the hero of the moment.
Talk to your customers.
If all else fails, you may be forced to ship orders late. In this case, good customer service is a must. In the face of a national crisis, your customers will understand. The key is to communicate about delays and give them regular updates.
If your supply chain is disrupted by a global pandemic, there may be a silver lining. It could expose weak spots in your operations that you can now strengthen. This crisis may be a time to consider ways to diversify and bolster your operations. That can protect you against future shocks, which are sure to come. While global pandemics are blessedly rare, other types of disruption are increasingly common. Now is a good time to create a resiliency plan for your business.
The path of the coronavirus is unpredictable. There’s no way to completely protect your business from every disruption. However, good planning and thinking ahead can put you in a better position to ride out whatever comes next. All businesses face challenges. The ones that thrive are the ones that meet those challenges head-on.
One of the best ways to protect your business from the effects of a pandemic is to keep up with the latest news.
- The US Centers for Disease Control has information on how the virus spreads and a special website with updated information.
- The World Health Organization has posted a guide to help you reduce your chances of catching the coronavirus.
- The Washington Post has live updates on the latest news about the outbreak.
- The South China Morning Post has a good explainer on the virus that includes an updated list of COVID-19 cases.