Supply Chain Ripple Effect from Coronavirus Outbreak Can Put Your Business at Risk

Companies don’t exist in a vacuum. Organizations of all sizes and across all industries rely on a complex web of connections and partnerships to get things done every day. The companies that organizations depend on—and the companies that those companies and the companies they depend on—form a supply chain that can put the organization or its ability to deliver for customers at risk. For many businesses, the current coronavirus pandemic is a trial by fire of sorts—exposing the ways they’ve been exposed to risk and providing tough lessons.

Fallout from Coronavirus Pandemic

The current coronavirus began as an outbreak in Wuhan, China. As the medical community around the world recognized the potential for this virus—ultimately dubbed COVID-19—to become a global pandemic, the confirmed cases in China quickly spiraled out of control. China shut down factories and production ceased, but that was just the first domino. As we have seen, other countries soon began to report confirmed cases of COVID-19 as well, and the exponential spread took it from outbreak, to epidemic, to pandemic.

Just this week, the NBA (National Basketball Association), NHL (National Hockey League), MLB (Major League Baseball), MLS (Major League Soccer), and NCAA (National College Athletics Association) Marhc Madness basketball championships have suspended or postponed their seasons. Governors in many states have banned gatherings of more than a couple hundred people. Many companies have proactively directed employees to work from home and colleges and school districts have shut down or switched to online classes to limit socialization in an effort to contain the spread. Even Disneyland and DisneyWorld have shut down out of an abundance of caution for this rapidly spreading threat.

At the same time, global stock markets have crumbled. Travel and hospitality businesses like airlines, cruise lines, and hotels have been crushed by travel bans and canceled trips, and companies from Apple to Broadcom and many others have issued guidance for investors that they will miss revenue targets for Q2 as a result of the impact of coronavirus on their supply chains.

Supply Chain Risk

Jennifer Bisceglie, CEO of Interos, has a unique perspective on the exposure to risk companies face from the broader supply chain. Interos was founded to help customers understand the comprehensive web of the supply chain and help identify risks that require attention. The company maintains a database of over 50 million relationships—the world’s largest company database—aand leverages machine learning and natural language processing to process more than 250 million risk events per month.

In a statement that was shared with me, she stressed that the reality is that most companies have never really thought about their exposure to risk from their supply chain. Those that have often stop at their direct suppliers and don’t understand or consider the complex web of interactions that have to occur for those direct suppliers to meet their needs.

Bisceglie emphasized, “As manufacturers and businesses assess the risk of the Novel Coronavirus outbreak to their supply chain, it’s important to consider the ripple effect the virus has on China-adjacent economies as well. While we’re seeing increased attention to potential dependencies on China, Asia as a whole is a major hub for technology production, leaving room for further disruption to suppliers outside of China and thus the larger global economy.”

This pandemic seems to demonstrate that China is a vulnerability—a single point of failure that can cripple the whole supply chain. One of the seemingly obvious responses is to move manufacturing and distribution out of China and diversify around the globe. However, Bisceglie also pointed out, “Reactively shifting future suppliers away from one country isn’t the answer to diversification nor is it the solution to future disasters. It’s important to understand the interconnectedness that today’s companies and business relations have across the globe.”

For example, it’s not uncommon for China-based companies to have remote operations, so the impact may be more widespread across the globe. Meanwhile, Malaysian-based companies may struggle to source materials like integrated circuits and refined petroleum elsewhere as the country’s become increasingly dependent on mainland China, which has become the largest exporter to and importer from Malaysia.

As the world begins to see the impact the coronavirus has, it’s an important reminder that companies can’t assess risk strictly based on immediate supplier location, they need to understand exactly how business in affected regions are interwoven into their supply chains and if there are concentration risks there. Most companies assess risk on a digital or cyber level, but Interos provides a much broader understanding of the risk customers are exposed to.

In an increasingly connected world and global economy, it’s crucial to have a more holistic view of risk. There is nothing that an organization can do, per se, by itself to avoid the consequences of a health pandemic, but companies also shouldn’t be caught off guard or surprised by how the impact of the pandemic around the world affects their ability to be productive and meet their own commitments.