Local Supply Chain Still Faces Significant Coronavirus Disruption
This is a guest post by Jake Rheude.
The World Health Organization on Wednesday declared the rapidly spreading coronavirus outbreak a pandemic, striking more fear into the heart of people around the world for their health and their work.
Concern is running through the supply chain at lightning speed while companies try to understand how to protect workers while keeping operations running. It’s hard to know when to send someone home or how to manage a remote team, plus if you should run a full staff or if order declines will reduce labor requirements.
Supply chains are increasingly global, and the slowdown in China has definitely hit home. At the same time, stores are running out of disinfectants and personal cleaning products. Consumption patterns are shifting,
meaning airlines need to order less food, but your local grocery stores or companies delivering takeout might have to stock up.
Beyond container ship traffic and air freight slowdowns, or Amazon removing fake cures and dubious books, small businesses are feeling the pain too. More than 33% of U.S. adults are shopping less in stores, and e-commerce isn’t predicted to stave off that harm.
No one can know what the future truly holds, but we can take a quick look at two of the biggest markets and how they’re at distinct stages of the outbreak, plus what this means for businesses like yours.
China Might Be on the Mend
One good piece of news is that the rate of new patients with the coronavirus has fallen below the rate of people recovering from it in China, according to Forbes. It’s beyond phenomenal news for the region. If this sticks, then it means the outbreak has stalled thanks to aggressive measures.
The hope is that this will allow the country and its citizens to return to work, though there are stringent rules in place. Employees face limited times they can go into the office, face multiple temperature- and health checks, rotating teams, maintaining specified distances from each other, and more. The country is hoping to ramp production back up to lessen the long0term impact of disruption.
That can be a positive sign for helping companies meet past demands and orders, which could limit some of the harm that the outbreak has caused, already covered here. What this doesn’t solve is the current state of affairs in the United States and Europe, where the epidemic is spreading, and disruptions to work, ports, freight, and more might soon ramp up dramatically.
The U.S. Faces Growing Concerns
The near-term future of the coronavirus might be that we have Chinese manufacturers ready and producing goods, but no one able to receive it. As previous orders are met, there could be a decline in new orders, so increased production becomes a wasted effort.
Getting healthier might not mean getting better.
Right now, the businesses impacted are those reliant on others importing goods in China and shipping to end consumers. But as their workers start becoming ill or other parts of the supply chain limit activities, such as congestion at the ports or increased quarantines, people up and down the supply chain will face slowdowns and delays.
You should expect that to continue in places like the U.S., which are a few weeks behind outbreaks in China or Italy, but still are seeing exponential growth. According to reports, on Wednesday, March 11, more than 1,080 people in 40 states and Washington D.C. had tested positive for coronavirus. It is spreading within communities, reaching many people who have not traveled overseas.
While there are some moves to clear out empty containers and prepare for the return of goods in Western ports, there is still a lot of pain.
“The overall impact is not only on the regional economy, it is on the national economy,” Mario Cordero, executive director of the Port of Long Beach, told the LA Times. “We are ground zero for Asian imports. We were already down because of the trade war. With the coronavirus, we’ve gone from uncertainty to potential chaos.”
Cargo losses are impacting port companies, drivers, shippers, truckers, and more. All of whom may be losing out on pay before a potential illness.
And when the U.S. is projected to be hit hardest by the outbreak, in terms of infections, ports expect to see a lot of exports and imports arriving. They’ll need to clear containers, handle goods, and have enough trucks to get stuff off the docks. Then, rail and local drivers will need to be in place to keep things moving.
It’s a gamble if that will occur when there is staff healthy enough to keep the supply chain moving.
Learn to Understand the Bullwhip
What logistics professionals and especially ecommerce brands should focus on for this outbreak is how to protect themselves against disruptions and the bullwhip effect.
In the logistics space, the bullwhip effect is “a distribution channel phenomenon in which forecasts yield supply chain inefficiencies. It refers to increasing swings in inventory in response to shifts in customer demand as one moves further up the supply chain.”
Companies lose money from these swings because they can’t anticipate supply and demand.
The coronavirus may cause a significant shock here as it hits both. Supply is reduced because of the manufacturing drop in China. By the time that is remedied and orders filled, future demand could be down if consumers are sick or if companies have already sourced alternative suppliers.
Minimizing the bullwhip effect comes in a variety of forms, from inventory planning to adopting smarter technology. Look for opportunities to create safety stock settings, and work with partners to identify “early warning” opportunities for when inventory or demand is out of the norm. If you work with the manufacturing of goods, you might want to source multiple raw materials providers as well as the companies that process anything you need.
You might be able to protect yourself by pursuing smaller order sizes compared to bulk shipments, or by focusing on quality so you run fewer sales during the year, both of which can make revenue steadier.
A streamlined supply chain is often recommended, but reducing suppliers and tiers in the supply chain may not keep you secure during something like the coronavirus outbreak. It’ll impact a wide range, and a lack of backups could do harm. Unfortunately, there’s no single answer that always protects both operations and expenses.
What we do know for the coronavirus and other supply chain disruptions is that companies do better when they share information. Be a partner to your suppliers and customers and tell them what’s happening with your demand. Ask about their operations and ability to handle orders or changes. Communicate and provide data when a partner asks.
This way, you’ll be best positioned to understand the market, which makes it significantly easier to respond to the market.
Jake Rheude is the Director of Marketing for Red Stag Fulfillment, an ecommerce fulfillment warehouse that was born out of ecommerce. He has years of experience in ecommerce and business development. In his free time, Jake enjoys reading about business and sharing his own experience with others.