Impact of coronavirus on supply chains continues to grow

Procurement professionals working on strategic sourcing are responding to the continuing spread of the CIVID-19…...

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Procurement professionals working on strategic sourcing are responding to the continuing spread of the CIVID-19 coronavirus outbreak by intensifying efforts to find alternative suppliers outside China.

Shippers have been badly hit by delays caused by the virus, which continues to cause a production standstill in the Chinese district of Hubei, the epicentre on the outbreak. 

This has led to a doubling of searches for alternative sources of supply, according to online international freight marketplace Freightos. 

The company stated in a research note: “The share of searches for countries other than China has climbed to more than 17% so far this month, up from less than 8% a year ago.”

The outbreak has hugely complicated supply relationship management and supply chain management more broadly, with Hubei factories likely to face a large backlog of orders upon reopening.

Experts forecast that once production is resumed, rates for shipping between China and destinations such as the US and Europe could soar.

Hubei government officials have announced that none of the companies in the region will be permitted to recommence operations prior to 21st February, though firms producing food and medical supplies will be exempted.

The impact on Western firms cannot be overstated.

A new analysis from Dun & Bradford found that 92% of US firms are heavily reliant on top-tier suppliers in the Hubei region.

The latest count puts the number of confirmed, newly infected cases at 14,840.

The final result of revised strategic sourcing for alternative suppliers will depend, the study points out, on the specific products required.

The analysis indicates that Mexico may be the supplier base of choice for many furniture manufacturers, for example, while electrical machinery is likely to be sourced predominantly from Brazil.

Commenting, François-Henri Pinault, CEO of Gucci’s parent company Kering, said: “Due to the evolving nature of this situation, it is impossible at this time to fully evaluate its impact on our businesses and how fast they will recover.”

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