How the coronavirus outbreak
has taken a toll on supply chains

Compiled by Lindsay Pietenpol, assistant editor, ASQ’s Quality Progress

It’s impossible to escape the news about the novel coronavirus, now known as COVID-19. The disease, which was first identified in Wuhan, China, in December 2019, has quickly spread to more than 150 countries, infecting tens of thousands of people and claiming thousands of lives.¹

In addition to the heavy toll on human lives, the virus also has had a huge impact on supply chains. You’ve probably experienced out-of-stock items at your local stores—empty shelves where toilet paper, disinfectant wipes and so many other readily available items used to be.

“The retail trade, which functions to retain the lowest possible inventory outside of the actual brick-and-mortar outlet, is beginning to experience stock-outs,” said Chuck Franzetta, CEO of Franzetta & Associates, a business management consulting firm in Pennsylvania. “The occasional empty shelf is becoming more prevalent.”²

Online retailers typically retain a higher inventory, but they also are starting to experience shortages due to limited port traffic and activity in major supplier locations. So are manufacturers, who also typically have a higher level of safety stock inventory.³

“Those inventories are starting to show strain, with many manufacturers facing the probable need to shut down production lines,” Franzetta said. “That has already begun in the auto industry.”⁴

General Motors, for example, has had to airlift parts for its North American truck production, and Fiat Chrysler is looking into alternate suppliers.⁵

“Automotive is a capital-intensive industry that attempts to operate without major stockpiles of parts, making it especially vulnerable to the coronavirus’ spread beyond China,” wrote CNBC reporter Michael Wayland. “One kink in the supply chain can cause widespread disruption and can quickly cost millions or billions in lost production, which is why auto companies are hastily searching to find alternative solutions.”⁶

In March, the Institute for Supply Chain Management (ISM) surveyed organizations about the effect of COVID-19 on supply chains and business.

“We’re seeing that organizations who diversified their supplier base after experiencing tariff impacts are potentially more equipped to address the effects of COVID-19 on their supply chains,” said ISM CEO Thomas Derry.⁷

Companies with less flexible supply chains aren’t so lucky, however. According to the same survey, more than 44% of respondents said they don’t have plans to handle a supply disruption with China. And according to survey respondents in China, they are operating with only 56% of their workforce and are running at 50% capacity.⁸

“The bottom line is we should brace for a major effect on manufacturing worldwide,” said Laurie Harbour, president of Harbour Results, a business management consulting firm in Michigan. “Companies have already put plans in action, but the worst is yet to come. We will not know the true effect of the pandemic until sometime in the future as the impact ripples down the supply chain.”⁹

Supply chains

According to experts, the supply chain disruption caused by the COVID-19 outbreak is just another example of how outdated and unreliable many of today’s supply chains are. The future of supply chains can fix this problem, however, and some organizations already are moving in that direction.

“Companies that rely on global supply chains are belatedly moving toward new technologies to build robust, transparent, agile, and sustainable supply chains that are prepared for these challenges and fit for a modern globalized industry,” said Dave Evans, cofounder and CEO of the virtual manufacturing platform Fictiv based in San Francisco. “The race is on to transform and modernize before it’s too late.”¹⁰

According to Evans, there are three areas that companies must focus on to future-proof their supply chains:

1. Companies must move away from single geography sourcing.
2. Self-driving supply chains. Automated supply chains are made possible by new technologies such as blockchain, artificial intelligence and machine learning, which prevent supply shortages, cost overruns and delays.
3. Modernizing internal operations. Companies also must get rid of supply chain management and operations that depend on outdated tools like spreadsheets, late-night overseas calls, and emailed specs and proofs.¹¹

“The coronavirus is just another of what will likely be a string of ongoing stressors,” Evans said. “The world must embrace technology to build robust, transparent, agile and sustainable supply chains that can withstand the increasing torrent of challenges to come.”¹²