How the coronavirus can impact global supply chains
March 17, 2020
Businesses must address the effects of the coronavirus (COVID-19) on the global supply chain. Zurich Canada’s Interim Head of Risk Services explains why.
The traditional view of business resilience is that supply chain interruptions are location-based events. We now know in this global economy that supply chain resilience can easily be affected by several different types of events and not necessarily related to a property loss. They can be caused by natural hazards that impact the surrounding area, political unrest in another part of the world, and liability issues such as a product recall and infectious diseases. For example, coronavirus (COVID-19) supply chain issues have come into focus.
Another aspect that may impact business resilience is the trend for organizations to seek a balance between lean operations and globalization to maximize profits, minimize expenses and allow them to operate in a just-in-time, just-in-sequence world and to make sure that products are flowing to customers in a timely manner.
What happens is that when businesses go lean, they sometimes increase their risk to supply chain interruptions. There’s an intersecting point where businesses have both maximized their ability to take advantage of the global supply chain but also minimized their expenses, while still remaining within an acceptable risk tolerance.
An event like the COVID-19 outbreak is not only impacting shipping lanes, ports and locations, but also the people inside manufacturing facilities that are making the products.
Businesses that are better prepared to address their supply chain risks are typically going to recover more quickly than those that are just beginning to understand how to strengthen the weak links.
Chris Snider, Property Risk Services Manager and Interim Head of Risk Services for Zurich Canada, recently talked about how the COVID-19 virus could affect the supply chain of global businesses.
Q: How has COVID-19 impacted the global supply chain, and how is this event different than past supply chain disrupters?
Supply chain risks transcend all different kinds of triggers, not just pandemics. Severe weather, political unrest and port closures are just a few of the other risks that could disrupt the supply chain for a business.
COVID-19 broke out in a particularly sensitive region of the world when it comes to supply chain risk, as China is one of the largest manufacturers of parts and products for businesses around the world.
What makes this viral outbreak different than other recent outbreaks, like H1N1 and SARS, is primarily in how governments reacted. Few anticipated that whole cities would be placed under a 14-day quarantine.
Q: As the coronavirus continues to spread, creating uncertainty for global businesses, what are the things businesses can be doing now to reduce their supply chain disruption?
There are two things that businesses should be doing concurrently and right away. The first is assessing your current exposure to supplies that have already been interrupted and sourcing alternative suppliers. If you have to prioritize, focus on the supplies that have the greatest impact on your revenue.
The second is looking at locations that have yet to be interrupted and making sure those are secure. We know where the outbreak is concentrated today, but if you have a supplier in, say, the Midwest United States, and an employee who has traveled abroad returns to work and is infected with the virus, the plant may be shut down.
Finally, it’s never too early to start learning lessons from this event and to apply those lessons to prepare your business for the next supply chain disrupter. Now is the time to update your global action plan, which will require an investment in time and manpower.
Q: Can you talk more about how businesses should prepare for the next disruption?
One thing that businesses can do is to look at where they have clustered their supplies and their suppliers. If they have the ability to move suppliers to different countries and diversify across the globe, that can help reduce their supply chain risk. They will have to consider the cost of such moves as well and balance that against their bottom line.
Also, it’s important to have a discussion with a supply chain risk management partner, who should be able to provide early warnings to potential breaks in the supply chain and, therefore, allow the business to get a head start on securing alternative supplies.
For information on how COVID-19 may affect cargo insurance customers, read our Zurich Risk Insights article.
Read our other COVID-19 resources.