As China feverishly works to develop a cure for the Coronavirus, formally named COVID-19, companies around the world are trying to assess the impact on their supply chains.
Dun and Bradstreet estimates that 90% of all active businesses in China---or about 22 million businesses---operate within the regions impacted by the Coronavirus. In turn, these businesses would impact approximately 56,000 companies around the world with suppliers either directly or in the first and second tiers.
According to its report, “Business Impact from the Coronavirus
.” Dun and Bradstreet estimates that 163 of the Fortune 1000 have tier 1 suppliers---those they do direct business with---in the region. And 938 have tier 2 suppliers. Yet, while many of these companies are likely aware of the status of their tier 1 suppliers, the same can’t be said of their tier 2 suppliers who they use indirectly and happen to operate in the same part of China.
While the full impact of the virus is unknown, now is the time for companies to take action to minimize both short- and long-term effects on their supply chain operations.
In a recent podcast, Grant Thornton leaders John Cassimatis
, Managing Director and Business Consulting Life Sciences Leader; Jonathan Eaton
, Practice Leader for Grant Thornton’s National Supply Chain practice; Yvette Connor, Principal Strategic Risk and Operations; Jeff French
, National Managing Partner, Consumer Industrial Products; and Kevin Kelly
, Retail Industry Leader, weighed in on the impact of the Coronavirus on industry and their supply chains. Listen to their insights below.
About one-third of companies currently have “what-if” analysis scenarios in place for teams capable of modeling the impact of the virus. In order to effectively prepare their supply chains to be resilient in light of the ongoing effects of Coronavirus, Grant Thornton’s Jonathan Eaton, National Supply Chain Practice Leader said it’s critical that companies start by profiling their risk.
“Companies need to understand the risks and be able to quantify them to build resilience and plan for alternative sources of supply,” he said. “I hate to use the words ‘disaster recovery’, but those companies need to get prepared to put those disaster recovery plans in place when something like this happens.”
Eaton added, “I really believe that if more companies had a good supply chain risk management and resiliency planning capability in place today, they could likely be in a better position and not be as negatively impacted by the Coronavirus situation.”
Grant Thornton’s Life Sciences Leader John Cassimatis agreed that “continuity planning is very, very important but that now is also the time for pharma companies to take advantage of emerging opportunities to increase demand for their product. While you need to think about your business continuity, this situation may also present new opportunities.”
Companies in the retail industry would be wise to step up their communication plan, according to Kevin Kelly, Grant Thornton’s Retail Industry Leader. “Communication is key,” he said. “Many companies in the retail industry have really begun to evaluate alternative supply routes and vendor partners to insert diversification in their supply chains. A robust communication plan can help them navigate through some unchartered waters.”
Yvette Connor, Grant Thornton Principal, Strategic Risk and Operations, warned that companies should not be overly cautious. “There’s a lot of distrust of the information that’s come out of China in terms of its validity,” she explained. “As a result, they’re not necessarily rushing to sit down and run the numbers around some of the assumptions they’re looking at in terms of a resiliency play.”
She offered up the example of Hyundai, a company that has concentrated its supply chain over the last 20 years around a manufacturing process in China. “Yet, they are the absolute first company to fall and announce that they are turning off their manufacturing in South Korea even though they’re the very same auto manufacturer that built the concentration to risk. In other words, the company with the most obvious risk in China is showing us that they are the least prepared compared to Ford and others.”
Connor suggests that companies take this opportunity to step back and rerun their numbers. “Let’s look at where these dependencies are,” she said. “Let’s look at different durations of time and let’s see if we’re still comfortable with those answers. If not, let’s move into that back-up plan now versus later and not wait for the proverbial shoe to drop, allowing a competitor to get an advantage or incurring more financial duress for our business.”
She added, “Look deeper. Do the math. Run the scenario tests.”
Principal, Strategic Risk and Operations
+1 316 636 6525
Practice Leader, National Supply Chain practice
+1 704 632 3523
Retail Sector Leader
+1 212 624 5270
National Managing Partner, Consumer Industrial Products
+1 920 968 6710
Managing Director and Life Sciences Business Consulting Leader
+1 215 561 4200