The best and worst case for UK supply chains affected by the coronavirus

Posted on 25 Feb 2020 by The Manufacturer

Manufacturing supply chains could face “months” of disruption, as factories in China struggle to reopen in the aftermath of the coronavirus outbreak which has crippled parts of the country’s economy.

The World Health Organisation (WHO) also warned that if authorities failed to bring the coronavirus under control, its spread could be global. Image by conolan from Pixabay
The World Health Organisation (WHO) also warned that if authorities failed to bring the coronavirus under control, its spread could be global.

Manufacturing plants in China that produce smartphones, children’s toys and more complex components for automotive industry, stalled production because they stopped receiving materials necessary to build their products – which in turn affects the ability of UK manufacturer’s reliant on Chinese imports to meet customer demands.

It is estimated that some 60 million people have been affected by travel restrictions within China, creating a shortage of manufacturing workers who are prevented from using public transport.

Around 55 companies in Shanghai said last week that their global operations had been affected, with 78% saying they lacked enough staff to run production lines, according to the American Chamber of Commerce.

Although some automakers in China are starting to reopen, they “won’t restore normal production until at least mid-March”, according to sources speaking to the Associated Press.

That claim is in line with calls to bring the coronavirus under control by the middle of next month. But starker warnings suggest the outbreak could last well into May 2020 and beyond.

This week, the World Health Organisation (WHO) also warned that if authorities failed to bring the virus under control, its spread could be global.

Two DBS Bank analysts, Taimur Baig and Samuel Tse, also said that a global parts shortage was “likely” if work in China’s factories failed to “spike” in coming weeks.

Image by Gerd Altmann from Pixabay
China’s output accounts for around one-quarter of global manufacturing when measured by the value added by its factories. Image: Gerd Altmann viaPixabay.

China’s output accounts for around one-quarter of global manufacturing when measured by the value added in its factories.

It also accounts for around one-quarter of global automotive production, and provides 8% of global exports of automotive components, with many using just-in-time manufacturing, according to UBS.

Volkswagen, the country’s biggest carmaker, said on Monday it was dealing with a “slow national supply chain and logistics ramp-up.”

Global plastic, chemical, steel and tech firms could also face “reduced production”, according to UK-based consulting firm, Verisk Maplecroft, with one analyst saying that stagnation is “likely” to last through to the end of September 2020.

Some areas of China are beginning to stabilise with reports manufacturers in coastal provinces are back above 70% of normal levels, according to China’s National Development and Reform Commission.

Appliance manufacturer Haier Group reported that its suppliers are back to around 80% of normal production.

However, some smaller firms lack the resources of large industrial companies and are struggling to reopen.

President Xi Jinping has pledged tax cuts in a bid to revive industry, but economists are sceptical of its efficacy while the strict disease control and travel bans are in effect.

JCB – how the coronavirus can bring the UK supply chain to its knees

The construction company has announced to create 600 new jobs - image courtesy of JCB.
JCB has suspended all overtime at its UK factories – image courtesy of JCB

JCB is being forced to halt its production line and slash the working hours of around 4,000 of its UK workforce, owing to a shortage of components being imported from China.

The Staffordshire-based company, renowned for its distinctive yellow machines typically used in construction projects, announced the disruption to its UK factories after many of its Chinese suppliers were closed due to the impact of the coronavirus.

JCB has reduced the working hours of some 4,000 staff from 39 to 34 hours a week and pulled back on its production, because it is not receiving from China the “required” number of parts necessary to meet its forecast demands.

It has also suspended all overtime at its UK factories.

The announcement, thought to be the first tangible impact of the outbreak felt by a British manufacturer, will redound on other UK firms from various sectors who also source their materials from China and as the risk to global supply chains from the coronavirus is laid bare.

It is understood that more than 25% of JCB’s suppliers in China have been forced to shut down as a result of the outbreak.

JCB has not indicated when routine production at its UK factories will resume.

The coronavirus’ impact on other manufacturers

Automotive Conveyer in factory Production Line - image courtesy of Depositphotos.
“Major disruption to the global supply chain because of the Covid-19 continues” – image courtesy of Depositphotos

Fiat Chrysler said at least one of its European manufacturing plants could be forced to stop production, as it too sources parts from China.

While another carmarker, Hyundai, closed down all of its car manufacturing sites in South Korea when components from China stopped arriving.

There are also reports in various media about global tech companies’ supply chains being disrupted by the outbreak.

“Major disruption to the global supply chain because of the Covid-19 continues, affecting industries from automotive to toys – and the issue continues to escalate,” said Richard Wilding, Professor of Supply Chain Strategy at Cranfield University.

“In China, smaller companies may find it easier to get back up and running. But larger factories may have to go through a cleaning and disinfectant process before staff can fully return and implement appropriate procedures to identify potential infections in the workforce, similar to what we have seen at airports. For larger sites implementing such procedures could take weeks.”

Coronavirus heightens need to ‘think local’ on long-term basis

“The coronavirus has heighted the need to ‘think local’ on a long-term basis, and reduce over reliance on overseas sourcing,” said Roger Vance, MD of Ad-Vance Engineering in Northern Ireland.

“Many leading businesses are suddenly facing major supply challenges because of the coronavirus. And with over 50% of UK tool manufacturing currently being sourced from China, the impact on our entire manufacturing sector, and wider economy, could be disastrous.

“Across the board we are better organised, more responsive and much more efficient. We also have the experience, processes and people in place to offer an experienced, no-risk, high quality solution which is also very cost effective.

“Whist it is disappointing that it has taken a global threat such as coronavirus to highlight the benefits of re-shoring, I would urge the manufacturing sector to seize this opportunity to re-consider its supply base.”