Some of our clients have indicated a concern over the Coronavirus’s impact on their clients and how it will impact their resources and operating results. To better respond to my clients concerns I researched and analyzed what data was available.
Since our typical client are enterprises with revenue under $50 million, this newsletter will focus on enterprises of this size. Most of what you will find below will have similar impacts on non-international enterprises. Enterprises with global distribution into Asia and China would be an exception. They will face the largest challenges.
The data points below are from my research.
- One Medical professional believes the Coronavirus will peak in April or May.
- China has been on holiday for the Lunar New Year that ends February 10th
- The current provinces closed produce 69% of china’s GDP
The ban on travel could impact
- Hi Tech
- Machinery Industries
- High end retail goods
- the virus will impact China’s GDP less than 5%.
- 1% of China’s GDP = $153 Billion. The number gets large real quick
- 17% of China’s output are components for other manufacturers
- China provided $37.3 billion of said goods in 2018 world wide
After looking at the data and the markets served by middle market companies you will see both negative and positive impacts on these enterprises. In many instances it will create challenges either in expansion or contraction.
Yes expansion! If you are one of the mid-sized chip manufacturers remaining in the US you just might get a call from Apple inquiring into your capabilities and capacity. Landing such an order or orders definitely would impact cash flow, borrowing needs, and a better understanding of the resources required to move forward.
The retail industry is entering a slower period but that does not negate the impact of empty shelves on revenue.
- When will that occur?
- Can goods be sources elsewhere?
- How long will my current inventory last?
- What goods are on the water?
- What are our orders for the summer months?
- Will we need to layoff workers?
The answer to the above questions will impact cash flow, borrowings and operating results. Is it time for a hard look at those projections?
Is it really much different than the retailers? Could be a big positive for a company that sources products outside of China and its competitors’ source from China. This will impact the enterprise.
How coronavirus could impact supply chain
We cannot predict the impact of the coronavirus, yet enterprises might begin to see impacts throughout their supply chain, including:
- Supply shortages of materials or finished goods coming from or routed through logistical hubs in impacted areas.
- Labor: while not likely in the US factories or enterprises elsewhere could be affected: White- and blue-collar labor may not be available due to quarantine guidelines or illness.
- Selling and Servicing: Travel may be restricted to certain areas, limiting the ability to discover, qualify and certify new business or programs and to transact business.
- Supply Channel: Channels and supply networks may experience limitations in capacity and availability. Goods may sit at the dock or rail yard waiting for clearance. Finding alternative routes and means of transportation will become difficult.
Preparing supply chains for disruption
- Disruptions happen. Has the company developed a solid risk management process? Do they include risk indicators, what if scenarios, and planning for all resources including cash?
- Is it too early to plan? The full impact of coronavirus on US enterprises might not become obvious until sometime in the next few months and beyond. However, enterprises should take initial steps now to monitor and prepare for the impact on their company.
Short-term actions: Do it now
- Develop your risk assessment and planning models.
- Ensure all inventory is within reach and outside impacted areas and logistical hubs.
- work with their legal and HR departments to understand any financial implications of not being able to deliver supply to customers and provide guidance to employees located in the impacted areas.
Midterm actions: Do it this quarter
- Look at EOP and EOQ in light of supply distribution
- Look at long term diversification of sourcing by country and region
- Work with internal Stakeholders
- Work with exterior stakeholders for customers to their lenders.
- Prepare for shortages
By the end of February, we should all have a better understanding of the virus and its longevity. A lot will depend if China can open factories and guarantee the safety of its citizens. The holiday ends on Monday February 10th.
In the meantime, it may be time to review your portfolio and determine if any of your clients are at risk of disruption or growth.
As always, we are here to assist you or your clients in understanding how Coronavirus might impact them. Our proprietary interactive planning models are perfect for such in-depth planning and analysis.