Coronavirus: “Companies need to review alternative sourcing locations”

Those reliant on the global supply chain are urged to prepare contingency plans for a fall in output from China’s factories.

The cycling industry is one of many getting to grips with the continuing impact of the coronavirus and assess alternative sourcing points. Bafang is one of a few brands openly confirming that its factory in Suzhou will be closed for an extra week following the traditional factory shutdown for the Lunar New Year. Should the shutdown of China’s factories extend again beyond this week, that effect on the supply chain will be amplified.

The impact will also be felt by factories in Europe and beyond which rely on components sourced from factories in China, with reports that some car plants in Germany have already closed as they await raw materials.

“This is a major disruptive event with global implications for supply chains,” said Professor Richard Wilding OBE, Professor of Supply Chain Strategy at Cranfield School of Management. “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 24th and 30th 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 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.”

Beyond the coronavirus effect on the cycling supply chain and the search for potential alternative sourcing partners, there also looks to be an impact on trade events like the Taipei Cycle Show, which plans to press ahead without its Chinese delegation in March.