Coronavirus Outbreak and the Supply Chain

coronavirus supply chain

When you become aware of the fact that there are 52,000 lab test confirmed cases of coronavirus infection I just one and a half months, you know for sure that there are plenty more unconfirmed cases out there and the numbers are scary. A whole lot more since is an airborne virus. This is something that for sure will disrupt in a world economic level.

An epidemic can generate disruption in the global supply chain in two levels. First the obvious, it will affect trade in or around the affected area. This case being China; it will reach as far as the area has influence, China – Worldwide. It is one of the main goods traders in the world. So, as this outbreak impacts local trade it will spread globally. The effect will be in price of goods going up and down outside the usual trade thresholds. Some will be scarce, and price will go up, for example goods manufactured in the area. Some prices will go down like commodities since the demand will go down due to inactivity, for example fuels.

Beyond the obvious direct trade affected, there is another disruption that is created synthetically and that is speculation around probable future scenarios and activating risk management to coupe with this occurrence. Some will stock up on goods that will be identified as critical and under imminent risk. Some will prepare on the economy to be affected on the financial level: liquidity, insurance, interest rates, etc. On other cases noisy commodity markets might behave different that the usual expected.

Coping with such global event is an exercise of risk management assessment. For the supply chain the recommendation is to perform a risk assessment. First dissect the different players in your supply chain of the main Direct and Indirect Materials. Review the level of impact the epidemic might have on each player of each supply chain. After identifying the high-risk players, prepare a contingency plan for each one. Also include internal supply scenarios since disruption can come in any level.

Let´s hope for the best where this epidemic is soon under control but let´s prepare in case not so your supply chain is not disrupted.

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