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COVID-19 may force supply chain resiliency

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Manufacturing output rises unexpectedly From Starbucks to FedEx, Coronavirus Upends Businesses That Depend on China
The New York Times — updated Feb. 10, 2020

Over the years, companies as varied as Disney, Nike, McDonald’s and Hyundai have come to rely on China’s efficient factories and increasingly affluent consumers. Now the coronavirus is forcing companies to restrict travel to China or temporarily shut stores, offices, restaurants and theme parks. And, according to an article in The New York Times, the disruption to Chinese manufacturers has rippled through global supply chains, making it difficult for companies to obtain parts for everything from video-game consoles to cars.

Apple, for example, has a large sales presence in China and assembles most of its products there. It said in January its suppliers could be disrupted. QualComm, which makes smartphone chips, is also hurting, as are other tech players. Many auto plants have shut down in China, and Nintendo delayed shipments of its Switch game console to Japanese customers.

Among other industries suffering are travel (with Delta, United and American not flying to or from China), food (Starbucks has closed more than half its 4,300 stores in China and delayed an update to its 2020 financial forecast); clothing (Nike has closed about half its stores in China) and luxury goods (Estee Lauder warned the outbreak could hurt its financial results). 

Grant Thornton’s View Jeff French
Jeff French
Leader,
Manufacturing

How corporate operations are being impacted by the coronavirus shows the scale and global disruptive nature of the event. Not only are companies closing stores or locations in China but restricting travel and dealing with a displaced supply chain. I think this will clearly be the most significant negative business issue in the first quarter, not to mention the human health issues associated with this.

For many years we have heard companies talking about supply chain risks, as the world’s businesses become increasingly more reliant on global partners and customers. Recently, trade issues and tax changes have caused executives to rethink their supply chain flexibility. But the coronavirus, more than any other event, may finally get late adopters to look at their supply chain resiliency and a plan to deal with ever-evolving disruptions.