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11Mar

COVID-19: Transform costs into savings

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The outbreak of a novel coronavirus - named Covid-2019 by the World Health Organisation (WHO) - in the Hubei Province of China has now spread globally. Countries in Asia and Europe implementing containment and control measures through quarantine orders, travel restrictions and regular temperature screening for contract tracing.

As businesses in affected regions worldwide suspend operations, there is significant impact on the manufacturing processes and supply chain of companies. Companies worldwide are beginning to see supply chain disruptions with problems such as shortages in materials. There is also a concern that many companies are not fully aware of the second and third-tier suppliers being in affected regions - mostly in China.

How can businesses of tomorrow develop continuity plans that are resilient in face of global epidemics?

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Globalisation As A Double-Edged Sword

Compared to the SARS epidemic in 2002-2003, China’s involvement in the global supply chain has only increased, with trade shares doubling in the last 18 years. Representing approximately 16% of the world’s GDP, the increase globalisation of countries can have ripple effects on supply chain operations.

Burberry, a major luxury brand, has closed 24 out of its 64 stores in mainland China and continues to experience reduced operation hours. Likewise, Home Depot sources about 30% of its products from China - prompting executives to roll out contingency plans to mitigate the risks endured by the supply chain.

Statistics tell us that China’s economic growth is expected to slow down to 4.5% in the first quarter of 2020 - slowest it has been since the financial crisis in 2008.

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Impacts On The Supply Chain

With a nominal GDP over $10 trillion, China is now the second largest in the world. The quick transmission of the coronavirus has led to thousands of individuals being quarantined and businesses forced to shut down or pause their operations in efforts to contain the outbreak. As tourist numbers dwindle globally and consumer patterns shift away from products manufactured in China, businesses are facing a dip in profits and shares. Countries such as Laos, Cambodia, Myanmar and Vietnam have approximately 60-90% of exports and tourism revenue tied closely with China - which leaves them vulnerable to the economic downturn that is projected to happen due to China’s large stake in it.

Sectors such as the automotive and tourism industry are hard-hit by the slowdown of operations in China. Accounting for over 9% of China's vehicle population, Hubei is home to one of the five manufacturing centers in China. Diminishing stocks predict big declines in production volume, leading to shortages of goods. The dwindling supply of secondary materials used in the production of final products could lead to supply chain standstills as companies are unable to maintain a steady production of goods.

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Start Planning & Acting Now

Impact of the coronavirus epidemic has resulted in fluctuating stock prices, dip in economic earnings and slowing down the logistics and supply chain functions of businesses globally. While disruptions are not inevitable, businesses need to be fully aware of where their suppliers come from and spread out the risks involved by working with manufacturers not only from China but from other countries as well. Businesses can mitigate the risks that come with epidemics like the Covid-2019 by diversifying their supply base or establishing contingency plans for backup suppliers.

For instance, Roadbull’s ‘pay-per-use’ initiative grants businesses the liberty to only pay for the amount of space used in warehousing solutions. As imports and exports drop due to the current regulations and demand, the initiative aids businesses in cost-cutting amid the economic downturn. Comparatively, this is a much more flexible solution as opposed to a system whereby businesses need to pay monthly fixed amounts for warehousing and last- mile delivery needs.

Globally, supply chains of tomorrow need to build resilience through leveraging technologies, increasing preparedness and work smarter on risk management. As the world’s economies are largely intertwined today, our supply chain operations are the engines with which global economic growth is possible. Business leaders have to prepare both short and long-term measures to respond to a crisis in real time while building on inventories and pivoting for risk management if the crisis continues to persist for sustained periods of time. Choosing the right logistics business partner thus provides businesses with the capacity to tide over times of economic peril.

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