Coronavirus and supplier management

The first news about the coronavirus in China was in early December 2019, and along with the information about the virus came also concerns about what, besides people, the virus could affect. It didn't take long for it to become clear that world production and trade with China would be impacted.

In December, a yellow light went on for many companies around the world, after all, a good part of international trade has China as a main partner, either as a supplier or buyer of finished products or raw materials.

However, trade between countries other than China also ended up suffering consequences. This happens because world production, when affected, causes indirect flows to also be impacted. To cite just one example, automobile production in Europe to supply the European domestic market depends on parts from China. As these parts had delays, far above the norm, and the industries only have safety stock to cover the transit time in addition to small variations in production, some factories were forced to reduce working hours and, therefore, produce less.

Figure 1: Correct supplier management can avoid major problems even during major crises. Source: Campaign Creators on Unsplash

In this context, it is worth mentioning that a good purchasing and supply strategy includes, among other steps, the classification of products and inputs according to “Purchased Value” and “Supply Risk”. And it was exactly the “Supply Risk” that made many companies trigger their plan B as it became increasingly clear what the proportions of the hitherto unknown COVID-19 would be.

In theory, when carrying out supply chain planning, companies should think about supplier management and map, at least up to the second level of suppliers, who are the most critical partners, which have easily accessible substitutes and what are the risks. associated with each decision.

This means that those companies that had this under management and monitoring, in the first weeks of January 2020, already knew which products, parts or raw materials originated in the affected areas and, therefore, were able to better prepare for what was to come.

The fact is that all companies that export or import from China have suffered or will suffer to a greater or lesser extent. A simple calculation shows that shipping from China to the US, Europe or Brazil takes an average of 30 days. This means that, with Chinese factories closing ahead of the start of the Chinese holiday on January 25, the last ships leaving China arrived at their destinations in the last week of February. And since logistics have not yet been normalized, we will have impacts on the production of some industries from mid-March.

The Chinese government has been doing its part, but some ports are still bottlenecked. Many ships did not leave, the terminals are full, even charging surcharges. There is a queue of trucks and congestion on the railways that arrive at the ports. Logistics are hampered, and it should take a while to get back to normal as the world began to suffer more from the impact of the virus from March onwards.

The new epidemic teaches us, once again, the importance of a robust supplier monitoring and management system, and how this is a basic requirement when it comes to crisis management.

Don't wait for the next crisis, is your company prepared? ILOS offers training on “Strategic Supply Management” e “Supply Processes”.