March 13, 2020

How the Coronavirus Impacts Your Supply Chain Decisions

Recently, Apple announced that it will miss its quarterly revenue goals, as its supplier Foxconn has been slow to return to capacity after several of its factories were closed down throughout China due to concerns over the coronavirus.

If you’re involved in the manufacturing business, this probably has you a bit more than worried. Apple’s CEO Tim Cook, after all, rose to his position through the supply chain side of Apple’s business — if he is having trouble managing the logistical issues caused by the coronavirus outbreak, who wouldn't?

There’s no doubt that the coronavirus outbreak is concerning, and it’s having a huge impact on manufacturing supply chain workflows. However, if you’ve been involved in the manufacturing industry for a long time, then you know that impulsive reactions can be unnecessarily costly. How concerned should medical device manufacturers be, and what should they do?

The first questions you should ask

The coronavirus outbreak has put many medical device manufacturers on edge, considering China is such a manufacturing powerhouse. These questions are certainly important in the current coronavirus outbreak, but they’re equally relevant to ask in response to any disaster that could potentially upset your supply chain.

1. Can I get ahold of my manufacturer?

Communication in these circumstances is key; it will enable you to adjust your strategy accordingly and accurately assess how much this outbreak or future issues will affect your supply chain. If your manufacturer is keeping you in the dark, it might be a good idea to start evaluating alternatives.

2. What’s my manufacturer's contingency plan?

If your contract manufacturer is communicating with you on a regular basis, then your top-of-mind concern should be to determine what their contingency plan is. Does your contract manufacturer know:

  • What to do if there’s a worker shortage?
  • What to do if one of their factory locations is forced to close?
  • What steps to take to mitigate the spread of the virus in their factories?
  • Where to look for alternative manufacturing sites?

3. Is my manufacturer close to the epicenter?

You should also consider your manufacturer’s location. Hearing that there are many cases of coronavirus in one country might cause you to assume that any location in that country is at risk. Some countries, however, are quite large: It could be the case that your manufacturer is located thousands of miles away from the epicenter of the disease or disaster.

The next steps

If the answers to these questions have left you doubting the long-term viability of your manufacturing supply chain workflow in response to this outbreak or future threats, it may be time to start looking at your alternatives. But it's crucial that this process isn’t rushed. There are some further criteria you should consider when determining your next steps.

Can I afford to split suppliers?

One option would be to keep a backup supplier on hand. If you typically like the work your existing contract manufacturer performs, this could be a good option — if you can afford it.

If you decide to keep two suppliers on hand to work on one product, your original supplier won’t have as much purchasing power since you’ll be outsourcing some of their work to another manufacturer, meaning you’ll have to pay more in order for the original contract manufacturer to afford material.

You’ll also have to pay for the necessary tooling to manufacture your medical device twice. Presumably, you’ll have your second supplier in a different country (assuming you’re trying to avoid a a nationwide issue), meaning you’ll also have to pay a different rate for the different labor costs in that country.

Should I move all of my business to a supplier in another country?

Another option would be to pack up and move your manufacturing to another country altogether. Again, there are a few things to keep in mind.

First, does your new manufacturing center have the infrastructure necessary to support factories? Is there reliable power, transport systems, and so on?

Second, does your target country have the necessary population to support your manufacturing efforts? If, say, you have a contract manufacturer located in China close to the outbreak’s epicenter, it could be that they’re unable to open and produce the products you need. Perhaps you decide to switch to a contract manufacturer in Vietnam.

Before making this switch, you’ll want to see what everybody else is doing. If, for example, a large number of companies are switching from China-based suppliers to Vietnam-based suppliers, you’re going to find a whole new host of issues after your switch.

China is a massive country with a population that can meet numerous companies’ demand for workers. Other, smaller countries (like Vietnam) can’t support the massive demand for manufacturing that China currently supports. If there’s lots of competition, your supplier will be forced to pay higher wages to remain competitive. If enough competitors have made the switch, there might not be enough workers at all!

Diseases, natural disasters, and other disruptions are going to occur from time to time — dealing with these occasional upheavals is a part of managing a global manufacturing supply chain workflow. These are just some of the factors that you’ll want to take into consideration if you’re thinking about switching up your supply chain in response to the coronavirus outbreak or any other serious disruption. The important thing is to keep your head on your shoulders and take a sober account of the issues in front of you when making critical decisions about your supply chain.

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