While most consumers probably don’t notice much difference in their ability to purchase products and receive shipments from online or brick-and-mortar suppliers, they should be aware the logistics industry is working hard to maintain business as usual in light of the Coronavirus disease (COVID-19) spread. But, both the logistics industry and consumers need to be aware of positive steps that still need to be taken.
When the Coronavirus started to hit epidemic proportions, the Chinese New Year was in full swing. Logistics companies always factor in an anticipated shutdown. Everything was close to normal.
Now, international supply and demand is at work. Recently, the European continent has also been compromised with Italy and its strong Chinese economic ties. It is certainly the most affected European Union state. Because there is less supply, costs go up. Now, the just-in-time mindset of LEAN manufacturers is seriously challenged by the fact that Asian factories are at 40-70% of capacity and oceangoing vessels and ports have been closed. Prices could increase 15% or more.
In the meantime, customers have taken a number of steps to ensure that the consumer pipeline for goods is filled and customer satisfaction is protected as much as possible. Price sensitivity is fundamental to their crisis mode.
- Crisis management plan. When these plans are in place and tested, the ability to cope with an interruption in the supply chain is significantly enhanced. Recent trade dealings with China have already forced many companies to become passionate about planning and implementing their plans sooner than later.
- Dual sourcing. Whether it may require two different ocean-going logistics companies, two or more different manufacturers or two different carriers or U.S. transportation companies, logistics/supply chains need redundancy to react quickly to interruptions.
- Communication. The importance of continuous dialogue among all parts of the supply chain is critical. If you can identify where the pain points will be, suppliers can react. Companies need to know which part of their supply chains have the weakest links.
- Rates. By negotiating rates before a crisis, the supplier can ensure that its cargo will not be bumped by the e-retail giants of the world during a crisis. If there are 7,000 containers on an Asian ocean-going vessel, companies want their containers to be the ones that make it to the United States.
Both SARS and Coronavirus crises have a lot in common. In each case, lives are at stake. This is the real world human tragedy. The supply chain is much less important. Protecting humanity is paramount.
It has been estimated that SARS caused a reduction of 2.3% in the global economic expansion. With the growth of the Chinese economy and Amazon ground rules of today, the possibility exists for a decline up to three times greater than SARS. Consumers should brace themselves for price increases and delivery lapses.
Buying American or buying locally has a nice ring and offers short-term solutions. Consumers will be suspect of goods produced in Asia and Europe for now.
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As we consider who wins and who loses in a Coronavirus world, it is easy to say the strategic advantage goes to the competitor planning, testing scenarios, establishing a crisis team and implementing the plan. At any time, a country could close its doors. Those companies without a backup plan will feel the effects of the Coronavirus for the rest of the shipping season.
While it may be too late for some companies to create contingency plans to mitigate the current COVID-19 disruption, they should commit themselves to the planning needed to be sure they never experience the negative repercussions of a logistical or supply chain crisis no matter what form it takes—disease, boycotts, civil unrest, war or acts of God—in the future.