Corporate supply chains vulnerable to coronavirus shocks

Corporate supply chains vulnerable to coronavirus shocks


Shortages of components and raw materials because of the coronavirus are likely to be far worse than expected, experts warn, with most US companies unaware that they are exposed to Chinese factories idled by the outbreak.

“I guarantee you that most organisations have some level of exposure that they are not aware of,” said Alex Saric, chief marketing officer at Ivalua, a platform for digitalising procurement. 

While companies closely track their direct suppliers — the tier ones such as Foxconn that would send Apple a finished iPhone — they can be blind to their suppliers’ factories, the tier two, and those further down the chain.

Peter Guarraia, who leads the global supply chain practice at Bain & Co, estimated that up to 60 per cent of executives have no knowledge of the items in their supply chain beyond the tier one group. 

“The reality is, most big companies are just waking up to this,” he said. “There was really no data coming out of China for two or three weeks, and that scared a lot of companies.”

Resilinc, a California-based group that tracks more than 3m components to provide supply chain mapping services, has found that about 1,800 manufactured parts originate in the quarantined areas of China centred around Hubei province.

Chief executive Bindiya Vakil warned many companies could be in for a rude awakening in the coming months as shortages emerge for capacitors and resistors — inexpensive but critical components used in the printed circuit boards necessary for a vast array of high-tech consumer electronics. 

“The scariest thing we see is the highest numbers of parts [made in and around Hubei] are caps and resistors — tiny things nobody cares about — plus thermal components, plastics and resins, and sheet metals,” she said.

Ms Vakil recommended companies prepare for six months of supply chain disruptions. In past crises, she said, overlooked areas such as consumer packaging have played outsized roles in causing shortages. 

“After Hurricane Maria, hospitals really struggled with plastic bags,” she said. “It wasn’t the blood that was disrupted; it was the bags. That’s what always happens. Brands have a strong visibility on the expensive things — they talk to their suppliers weekly — but on these low-spend things, they don’t bother.”

Lora Cecere, founder of Supply Chain Insights, a research group, said two-thirds of businesses do not even know the locations of their second- and third-tier suppliers, let alone the factory names and critical details needed to make a solid assessment.

A graphic with no description

She warned that “no supply chain will be unscathed” and predicted 70 per cent of global manufacturers could find themselves where Ford was in 2011, when floods in Thailand cut off the supply of inexpensive components such as bolts. Numerous carmakers were caught off guard and had to shut factories. 

As Peter Hasenkamp, who led supply chain strategy for the Tesla Model S and who now heads up purchasing at electric car upstart Lucid Motors, said: “It takes 2,500 parts to build a car, but only one not to.” 

Paul Sura, vice-president of supply chain at Cypress, a manufacturer of semiconductor technology that has a factory in Wuhan, the Chinese city at the centre of the coronavirus outbreak, said he is in constant contact with the likes of Continental and Bosch — tier-one suppliers to the automotive industry — but it is rare that he ever speaks to the actual carmakers. 

When those conversations do take place, they would not touch on the 50 or 60 suppliers that feed into Cypress. “They wouldn’t talk specific parts, they’d talk capacity,” he said.

While many companies have used upbeat language about resuming production, some have acknowledged their blind spots. William Rhodes, head of car parts retailer AutoZone, recently told investors: “The next couple of weeks to a month are going to be critical to see what actually happens. We don’t have good insights into that.”



Source link Google News

Share