Is It Possible to Be Ready for an Unexpected Threat?

On 30 January, World Health Organisation (WHO) declared international emergency due to the outbreak of the new Coronavirus (COVID 19), which started in December 2019 in China, while in the middle of February Tedros Adhanom Ghebreyesus, WHO Director-General, stated that the spreading of the disease ‘holds a very grave threat for the rest of the world’.
Scientists, experts and practitioners discuss the effect of this situation on production, trade, established logistics chains and the entire economy.
We offer you several insights, shared at forums and the media.

Coronavirus – a major disruptive event to global supply chains

Richard Wilding, Professor of Supply Chain Strategy at Cranfield School of Management: ‘This is a major disruptive event with global implications for supply chains. Air freight is already down by 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 the 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, when production is typically down by 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 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.’

Will Coronavirus spark supply chain reviews for manufacturers?

Gregg Shenton, Marketing Manager at Indigo Software: ‘The Coronavirus outbreak and lock downs imposed by the Chinese government are starting to impact supply chains in sectors including pharmaceuticals, automotive and telecommunications. Many companies that rely on their products being manufactured from facilities in Wuhan, China, are considering alternative suppliers, as facilities in the region face potential production delays and difficulties shipping goods out to other regions.
This is forcing brands to reflect on their supply chains and consider who else might serve their requirements. Beyond China, where could manufacturing companies look for alternative suppliers?
Three countries within the Association of Southeast Asian Nations (ASEAN) community – Vietnam, Malaysia and the Philippines – are a good bet. They have high quality infrastructure and are heavily investing in technology solutions and automation, including warehouse management systems (WMS). The ASEAN warehousing and distribution logistics market is showing strong growth, owing to increased demand from the expanding e-commerce sector and from brands seeking manufacturing partners. What are the other plus points offered by these countries?
Top of the list of countries that supply chain experts will consider as an alternative to China is Vietnam. Due to the US/Chinese trade dispute, this country is tipped to be the biggest winner in the ASEAN region and exports continue to grow. Labour costs in Vietnam are around half of what manufacturers can expect to pay in China. Many large brands have already started or expanded their manufacturing in Vietnam, accelerating a trend that began some years ago, when Chinese inflation pushed manufacturers to seek cheaper locations. Dell, Kyocera, Sharp, Ricoh and other industrial brands already announced plans to shift some manufacturing into Vietnam. Consumer brands are sourcing from Vietnam too. Nike started sourcing 37 % of its manufacturing in 2010, while China remained at 34 %. By 2018, Vietnam had grown to 47 % of production, while China reduced to 26 %.
Malaysia is another option, with its relatively open, state-oriented and newly industrialized market economy. Many companies believe Malaysia offers benefits that its Asian counterparts currently can’t provide. Location is a prime consideration – there are seven international ports across Malaysia delivering products around the world. In addition, the country’s overall infrastructure is highly developed and shipping fees may be cheaper than in China. Other costs can also be lower, especially tax and utilities rates. Electricity costs in Malaysia are about 50 % of what they cost in China and corporate tax in Malaysia has reduced to 24 %. All products manufactured in Malaysia and imported goods are taxed at 5 to 10 %, but Malaysia has cancelled import duties on various raw materials, machinery and parts. In contrast, China adds VAT for non-Chinese companies, which can reach to about 4 %.
The Philippines is home to some of the newest manufacturing technology in the world and one of the fastest-growing economies in Asia. It is well known for manufacturing semi-conductors and electronic components, computer consumables and food. In addition, the country has a reputation for manufacturing high quality beauty products and furniture, using natural resources. In terms of resources, 70 % of the population speaks English, the country has a 94 % literacy rate and a highly-skilled labour pool. According to Oxford Economics, the Philippines is expected to out-perform China in terms of growth in the next ten years and many global brands have already started sourcing products from this country including Victoria’s Secret, Nike, Adidas, Avon and Johnson & Johnson.
Will the recent Coronavirus outbreak become a trigger for manufacturers to reconsider where they are manufacturing in Asia? Potentially it could signal a new, regionalised production era for brands, looking to manufacture in a wide range of locations to ensure their supply chains are better protected. In reality, China’s dominance in terms of labour resources and potential output is so vast, no single country can really absorb that existing production, but considering the alternatives, within the ASEAN countries especially, could be a wise strategy.’

The world should have been more prepared for coronavirus

William Haseltine, US scientist: ‘People should have learnt their lessons from Sars and Mers, but were seemingly caught unprepared following the outbreak of the virus, which originated in Wuhan, China, but has since swept across the globe.
In the past 20 years, the US has spent $50 billion dollars in preparation for a bio-terrorist attack. But the coronavirus isn’t on that list, because we don’t consider nature to be our enemy, but nature is our enemy in this case.
I have a very specific request to the US government, which is to include the Coronavirus into the list of organisms for which we have bio-preparation. It‘s not in there. It should be.’

 

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The magazine JŪRA has been published since 1935.
International business magazine JŪRA MOPE SEA has been
published since 1999.

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