Coronavirus: the threat to retailers in the global supply chain
14th February 2020
In the past few weeks Coronavirus, or COVID-19 as it is now officially termed, has become a global threat to public health.
The UK Foreign & Commonweath Office have advised against all but essential travel to mainland China leading to most buying and sourcing trips being cancelled. In China, factories that re-open after the Lunar New Year holidays remain shut. All this will likely have knock on effects to UK retailers in terms of key lines being out of stock due to the disruption in the buying/sourcing process and lack of production and manufacturing in China.
‘Analysts reckon that the virus could lead to Apple shipping 5-10% fewer iPhones this quarter and could scupper its plans to ramp up production of its popular AirPods’
We spoke to a Senior Director at a global sourcing company in Hong Kong and asked about the extent of how the factory closures in China is likely to impact availability of products manufactured in the country. “We don’t know” was the honest answer we got. Feedback is that the Chinese Government are delaying when factories can re-open and certain regional governments like in Shenzhen have suggested to factories that they don’t re-open until 1st March. In all regions, before a factory can re-open, they must get government approval. The movement of people is being strictly controlled and most people are still working from home so from a manufacturing point of view, not a lot, if anything, is being produced.
‘..supply chain leaders laughed when they said, “When local supply chains sneeze the global process catches a cold.” The severe contagious disease outbreak known as the 2019-nCov now makes this statement passe’
Even when factories re-open, another challenge they will face is the availability of raw materials as factories producing the raw materials will be shut as well. So the impact of the factory closures stretches right down the supply chain. There is no doubt that there will be an impact on the supply chain and lead times for all products manufactured in China but it’s difficult to predict what that impact will be and how long it will last. Sourcing offices are closely monitoring the situation, but no one can provide exact timescales of when things will return to normal.
So what can retailers do?
Our retail experts at 4C have provided a list of suggestions to keep in mind when contingency planning for these kinds of health disasters:
1. Talk to your suppliers
- Contact all overseas and domestic incumbent suppliers and ask for any specific impact by product of delays in supply.
- Delays are already happening because of the precautionary measures in place, so the suppliers should have a feel for any likely delays already and their information will be most accurate.
- Get confirmation in writing that contracts will be honoured and that suppliers will pro-actively advise of any issues – push the onus onto suppliers to communicate – they tend to get very quiet in these situations.
- Speak to alternative suppliers and see what stocks they have available. Although it is likely they will prioritise existing customers, it is worth understanding the volumes available in the market.
2. Talk to different business functions
- Product specifications – get a corporate view from trading law and technical. Are they able to review specs quickly to enable volume of lesser or higher-grade product to enter the supply chain?
- Ask the legal team to find out and understand any changes to import process, including timescales, paperwork and quarantine of goods.
- Collaborative and proactive planning with the supply chain team. Most ships are being rerouted via Busan which adds a couple of weeks to lead time. There may also be bottlenecks due to additional demand (the port is already operating at more than 80% capacity). Incorporate the extra lead time into scheduling for May/June 2020. Air freight is still operating – this could potentially be used in emergency cases although there will be additional costs.
3. Pay extra attention to the planning and execution of your seasonal events
With stock at a premium and availability likely to be affected, managing your events to maximise the stock that you will have will be key to delivering your sales and profit targets. Read our whitepaper on how to deliver a winning seasonal range
Find out more – How to harness data to deliver a profitable seasonal range
In summary, retailers should be proactive and keep constant communication with their key suppliers in China. Careful forecasting and planning are the only way to avoid key lines being out of stock in store!