Gauging The Coronavirus Effect On Supply Chains — And The Last Mile

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Pymts.com | Jan 30, 2020

global supply chains and coronavirus - Gauging The Coronavirus Effect On Supply Chains — And The Last MileProduction supply chains are likely to feel the impact of the coronavirus as it spreads in China and spreads across borders.

As China cuts off transportation access to and from cities like Wuhan, and dozens of airlines have canceled international flights to the country, the question of just how trade and production gets done — and with whom — looms.

It’s a “last mile” question that has special urgency within and beyond the country, impacting any number of verticals.

Inside the country, as reported by The New York Times, the government has been mandating that farmers increase vegetable production and deliveries of a wide range of foodstuffs to the region. The directive by the Ministry of Agriculture and Rural Affairs has issued a notice to keep supermarkets stocked in quarantined areas.  Keeping Wuhan fed — and making sure it can function, headed into and after the extension of the Lunar holiday early next month — is imperative, as it exists as a national transport hub.

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And as a transport hub, Wuhan is crucial for automakers such as Honda and Nissan. By way of another example, the Times reports that Cummins, a U.S. firm that makes generators and engines, has seven sites in Wuhan and does not know when those sites may reopen.

Impact to Tech Supply Chains

Sharp reverberation will likely be felt across tech supply chins. Apple may be among the more visible companies to be impacted, both in its supply chain and its retail presence. In the tech giant’s earnings call earlier in the week, CEO Tim Cook said that there are suppliers in the Wuhan region, and that it had closed a few retail locations.

“Many of the stores that remain open also have reduced operating hours,” said Cook. The company has alternative component sources, and according to the CEO is  also “working on mitigation plans to make up for any unexpected production loss.”

The fact that it is unknown if there will be any production loss is what has in part led Apple to issue a wider revenue guidance range for its current quarter than has been seen in the past.

In other examples of how supply chain shifts have been occurring — and may accelerate — Nikkei Asian Review reported that Pegatron, the world’s second largest contract manufacturer of electronics, will have new factories operational in Indonesia and Vietnam by the end of the year.

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The trade war may have spurred companies to think about moving production, and now difficulties with supply chains resulting from the coronavirus crisis may cement those plans, moving them from thought to action.

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Forbes | Jim Collins | Jan 29, 2020

Following on from my column yesterday, I have been attempting to divine the impact on global supply chains from the coronavirus outbreak in China. Travel services have completely ground to a halt as the Lunar New Year Golden Week holiday has been effectively cancelled this year, and the usual bounceback that is seen in the week following the holiday is not going to occur. Shanghai has extended the holiday one additional week—so it will now end February 9th—and I would expect that to be the norm around China.

I'll talk about supply chain and customer demand some — to give you some color. With respect to the supply chain, we do have some suppliers in the Wuhan area. All of these suppliers, they are our alternate sources. And we're obviously working on mitigation plans to make up any expected production loss. We factored best thinking in the guidance that we provided you. With respect to supply sources that are outside the Wuhan area, the impact is less clear at this time. The reopening of those factories after Chinese New Year has been moved from the end of this month to February, 10 depending upon the supplier location, and we've attempted to account for this delayed start-up through our larger range of outcomes that, that Luca mentioned earlier.

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With respect to customer demand and sales, we've currently closed one of our retail stores and a number of channel partners have also closed their storefronts. Many of the stores that remain open have also reduced operating hours. We're taking additional precautions and frequently deep cleaning our stores as well as conducting temperature checks for employees. While our sales within the Wuhan area itself are small, retail traffic has also been impacted outside of this area across the country in the last few days. And again, we have attempted to account for this in our guidance range that we've provided you. I hope that gets you some color.

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