I am currently in the US visiting a number of house building sites and manufacturing plants where talk of the effects of the Coronavirus is as rife as in the UK. The current US administration seems to try to dictate to the UK about our links with China and that we should be reducing any infrastructure alliance with the Chinese as opposed to strengthening them. However, due to former policy driving trade deals, like the UK, they have a strong reliance on supply of products from the East and production concerns are high.
The exact nature of the issue is still unclear as information out of China is often fairly restricted, but timing has been a serious issue for those serially unprepared. Businesses that carry stock often increase holding towards the end of the year in preparation for the impact that Chinese New Year brings, when working life shuts down for about 3 weeks. It can be common place in the US for companies to buy 40% of their annual stock 2 months prior to the Spring Festival.
However, those who adopt a ‘just in time’ approach to manufacturing are facing considerable issues as supply has dramatically dipped to almost standstill. Already impacted by Chinese New Year, the subsequent Coronavirus outbreak has delivered a serious problem, with increasing issues as the spread of the virus escalates. The flow of workers and their families throughout the provinces leads to more and more new cases being discovered and the requirement for quarantine zones.
It’s having a significant impact on manufacturing across the globe in a number of different sectors. Despite the latest report from IHS Markit, which states that the manufacturing sector has reported its fastest growth since April, as component stocks diminish, manufacturers will need to have a strategy for how they can continue production with this level of supply chain disruption.
In the UK, JCB is cutting production after facing a shortage of components from China, with reduced working hours for the 4,000 staff and an overtime suspension.
The automotive industry is being affected badly. Fiat Chrysler said that ‘at least one’ of its European manufacturing plants could be forced to stop production. Hyundai has already closed down all car manufacturing sites in South Korea when components stopped arriving from China. Jaguar Land Rover’s CEO said the situation could become critical next month and will affect the entire sector – he said they had even flown parts to the UK in suitcases. Technology is hit too – Apple announced last week that it will miss its revenue forecast for the March quarter due to the Coronavirus impacting both manufacturing and sales.
There is the potential for a domino effect and big British retailers are already preparing themselves for stock shortages due to China’s factory closures, including giants like Primark, Asos, DFS, B&M and Halfords. Even supply of toys and videogames has already been affected – no surprise really, when you consider that 80 percent of toys purchased in the UK are made in China.
Currently, indications for those who are prepared and have strong communications with China, are that it won’t get too bad. However, information out is not always accurate and whilst the West is reasonably unaware of the worker camps used for the quarantine of those returning from affected regions, so too are we wary of the situation.
Business owners who are reliant on products from abroad want certainty and currently there is none on offer. So all we can do now is prepare for the worst and hope for a clear end to this situation.