China’s coronavirus outbreak puts global supply chains at risk

The coronavirus has killed 1,665 people and sickened 68,500 in China, with other deaths now reported in Taiwan and France, according to Reuters on Sunday.

A special Dun & Bradstreet report, called the “Business Impact from the Coronavirus,” said the risk to companies around the world also is profound — with the outbreak hitting China’s regions that are home to “over 90% of all active businesses,” many of which are branches or subsidiaries of foreign companies. That means global supply chains will face delays and inventory shortages.

The report highlights that supply chains will experience disruption and that companies need to manage the ripple effect by knowing their supply risk. That involves having the procurement technology that helps pinpoint and track your main suppliers, or tier 1, and deeper still by knowing about tier 2 suppliers. Having this visibility can help avoid risk and disruption by alerting firms to the problem of having a single source for your products, which can leave you scrambling if that source experiences something like the coronavirus outbreak. In addition to an overall view of the virus’ supply chain impact, the D&B report has recommendations for protecting your supply chain. (See chart below.)

The D&B report also concludes that fallout from all of the business disruption could affect global growth.

“With the impact of the outbreak on the Chinese economy — which makes up about 20% of global gross domestic product (GDP) — the cascading effect might cause a drag of approximately 1 percentage point on global GDP growth if containment is delayed beyond the summer of 2020,” the report states.

Effects in Europe and U.S.

In a Reuters report Friday, Europe’s first coronavirus death was in France when an 80-year-old tourist from China died of the virus. It was only one of a handful of the coronavirus deaths outside China, Reuters reports.

The economic fallout for Europe and elsewhere is also a concern.

With Germany already having zero growth at the end of last year, the effects of the coronavirus on business won’t help its prospects, and Europe saw its first auto plant idled because of a parts shortage due to the virus’ outbreak, according to an economic snapshot of Europe in The New York Times.

The Times also is reporting that China’s president is increasingly under criticism and that he knew more about the outbreak earlier than his first speech about it.

In a CNBC article about the U.S. government being skeptical of information — health data and economic numbers — coming out of China, CNBC summarized the coronavirus situation to date:

“Since emerging from the city of Wuhan, the new virus has spread from about 300 people as of mid-January to more than 64,000 as of Friday — with the number of new cases growing by the thousands every day. World health officials say China’s response to the virus is an improvement from past outbreaks. China has been more transparent, World Health Organization officials told reporters this week. Chinese health authorities quickly isolated the virus’ genetic sequence and shared it on a public database in a matter of weeks, they said, giving scientists a chance to identify it.”

Next Steps

What does all of this mean for individual businesses trying to cope with the fallout from the epidemic?

“The best thing that companies can do is simply know their supply chain risks, and preemptively develop mitigation approaches. It can also be helpful to consider increasing the levels of buffer inventory,” according to Josh Nelson, Supply Chain Principal, The Hackett Group’s Strategy and Business Transformation Practice, in a press release. “Companies who identify specific supply risks and actively manage it will find solutions or at least mitigate the impact. Those that don’t are at the mercy of the virus and the public response.”

D&B has these tips for securing your supply chain.