supply coronavirus chain outbreak risk report and ... -2020...consumer electronics auto, industrial,...

© 2020 Resilinc Corporation. All rights reserved.

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SUPPLY

CHAIN

RISK

REPORT

Coronavirus OutbreakThe case for planning, preparedness and proactive action

2nd in a Series of Conference CallsUPDATED MARCH 4, 2020


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Speakers

Moderated by:

Jigar ShahSr. Director of Marketing

Resilinc

Bindiya VakilFounder and CEO

Resilinc


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• Background

• Notes for SC professionals

• Current Updates

• Just the Numbers: COVID-19

• Mapped: worldwide exposure

• Global impact by industry

• Supply chain mapped: suppliers, sites, & parts

• Recommendations

• Scenarios and Planning Horizons

• What Resilinc is doing

• What we suggest

• Q & A

Agenda

Assessing

Planning

Preparedness

Action


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What we know about the Coronavirus (2019nCoV)

• Nearly 100,000 infected with almost 3,300 fatalities

• Similar to SARS and MERS (2012), also the common cold,

but has spread wider

• Known cases are due to direct, second and third level

contact i.e. spreading through touching infected surfaces

• 1 Person can spread to 2.2 people (R-naught) compared to

Spanish Flu which had an R-naught of 1.8

• Current fatality rate 3.4%, was 2% before March (this is

possibly lower, because mild cases not known)

• MERS (35%)

• SARS (10-14%)

• 1918 Spanish Flu (2.5%)

• Flu (0.1%)

• Swine Flu (0.02%)

• No specific treatment options for Coronaviruses (CDC)

Dec 31, ’19 China reports pneumonia-like cases in Wuhan to WHO

Jan 4, ’20China authorities reported signs of pneumonia-like outbreak in

Wuhan

Jan 9, ‘20 WHO identifies virus as a coronavirus (similar to SARS)

Jan 22, ‘20 All travel in/out and intra-province transit within Wuhan is at a

standstill

Jan 30, ‘20 WHO designates Coronavirus as a Global Public

Health Emergency

Feb 4, ’20 South Korea: Hyundai and Kai suspend manufacturing

operations

Feb 11, ’20 WHO official names Coronavirus as COVID-19

Feb 18, ’20 Global Economy: China will decline by an est. 4.5% in

Q1Y20 and Japan projected 6.3% annual decline

Feb 22, ‘20 South Korea: Samsung, LG Electronics, LG Display, Toray

Group and other companies pause manufacturing operations

Feb 24, ’20 South Korea Raises Threat Alert Level; Turkey and Pakistan

Close Border with Iran as Covid-19 Continues to Spread

Mar 2, ‘20 WHO Calls Coronavirus in South Korea, Italy, Iran and

Japan Its ‘Greatest Concern’

Mar 2, ‘20 US supply chains and ports under strain from coronavirus:

warnings of extended disruptions as heighten focus on China’s

outsized role in global sourcing


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World Health Organization’sPhases of Pandemic

• Phase 1: A virus in animals has caused no known infections in humans.

• Phase 2: An animal flu virus has caused infection in humans.

• Phase 3: Sporadic cases or small clusters of disease occur in humans. Human-to-human transmission, if any, is insufficient to cause community-level outbreaks.

• Phase 4: The risk for a pandemic is greatly increased but not certain.

• Phase 5: Spread of disease between humans is occurring in more than one country of one WHO region.

• Phase 6: Community-level outbreaks are in at least one additional country in a different WHO region from phase 5 - a global pandemic is under way.

Source:

https://www.webmd.com/cold-and-flu/what-are-epidemics-pandemics-outbreaks#2

https://www.webmd.com/cold-and-flu/what-are-epidemics-pandemics-outbreaks#2


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Unfortunately, the intensity of the coverage is growing

• Media coverage

• Frequent media reports of new cases, fatalities and spread

• Media coverage of government response measures triggers a chain reaction

• 1.9 trillion links referencing coronavirus (and growing)

• Individual response to news

• People staying home, avoiding workplaces, keeping children home, curbing essential travel

• Hoarding of medication and essential supplies can cause supply chain demand –supply gaps and signification local and global upheaval

• Government action

• Large scale and widespread shut down of cities or affected towns can disrupt global supply chains far away from affected areas, cause extended transportation delays, capacity shortages, supply constraints and factory downtime or allocations.

• Strong Market reaction

• Stock market investors reacting to concerning news growing in scale can start selling stocks to switch to safer investment options, affecting stock prices in the near term, thereby affecting companies’ ability to raise capital.

• Medium term, this can lead to accelerated layoffs, profit warnings, bankruptcies, supplier failure.


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• Part shortages: 75%

• Workforce outages: 55%

• Transportation disruptions: 70%

• Cannot deliver to customers: 22%

• Capacity under-utilized due to all above reasons: 33%

Heavy reliance on inventory and allocation of constrained parts through mid-March

Manufacturing activity is slowed down

Current ObservationsHigh Tech &

Consumer

electronics

Auto,

Industrial,

Heavy

Machinery

SemiconductorMedical

Devices

Pharma- Life

SciencesHealthcare

Consumer

Goods

FG Inventory buffers reduced

Lead times getting pushed out

PO deliveries delayed

Supplier allocations

Lines down

Customers on allocation

Revenue Lost

Widespread Some Commodities

By end of March, all

could be Red, if shut

down & quarantines

expand through March


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Current

78% Companies in China report that there is not enough staff to resume work

3%-7% Workers able to return to work in affected areas

25% Businesses operating normally in Central Sichuan province

China Factory Labor Shortages: What to expect

6-Month Outlook:

• Workers not paid by employers during shutdown (or partially paid) will leave

• Some workers permanently displaced – will find better paying jobs at larger companies

• Some jobs will be lost to layoffs

• Larger, cash rich companies will be able to secure workers by paying premiums

• Smaller companies will struggle to fill positions and restart operations

Workforce disruptions expected to continue well into next two quarters


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Near term risks:

• Drop in ocean freight traffic → Lost revenue

• Inability to secure staff to resume loading/unloading and processing operations → inability to take advantage of near-term opportunities

• Current reduced pricing could get locked into long term contracts → some shipping lines could experience financial distress

Logistics Companies: A Mixed Outlook

6-month outlook for shippers:

• Transfer of shipments to air freight for expediting shipments

• Near term low fuel costs will help offset some shipping costs, but expected to rise through recovery

• Demand for higher capacity in coming months on key lanes could cause companies to reduce capacity on less profitable lanes

• Logistics pricing expected to be volatile in the medium term to fuel recovery

• Capacity constraints expected on all modes once recovery resumes


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• Types of losses companies are incurring: Financial losses include lost revenue, premiums paid to secure

raw materials and parts, emergency labor costs, expedited freight costs, cash burn due to factory downtime,

employee monitoring and protection costs

________________

• Property policies usually cover physical loss or damage to insured property resulting from a covered risk.

• Sites have to suffer physical damage

• Risk has to be covered peril → loss of profits because of people not able to come to work, or government travel

restrictions generally does not trigger property insurance coverage.

• Contingent Business Interruption (CBI) requires covered direct physical damage to property of a named

customer or supplier. Coronavirus has not caused physical damage to property, so financial losses would

generally not be covered.

• Trade disruption insurance (TDI) covers loss of earnings, unforeseen costs and contractual penalties that

result from disrupted trade flows.

• Generally TDI does not require that there be a direct physical loss to goods or their conveyances.

• Could provide some level of protection to companies

Can we count on Insurance to cover financial losses

Source: https://www.willistowerswatson.com/en-US/Insights/2020/02/would-insurance-policies-cover-losses-related-to-coronavirus

https://www.willistowerswatson.com/en-US/Insights/2020/02/would-insurance-policies-cover-losses-related-to-coronavirus


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Current situation:

• Fall in demand – some lost forever (e.g. closed restaurants, canceled trade shows,

public gatherings, travel plans etc.)

• Companies that can supply parts have found customer factories are shut down and

cannot receive shipments, therefore, cannot collect payment

• Cash remains tied up in FG, collections at standstill, payments continue to pile

up.

65% of small companies in China have 2 months of cash

What we recommend:

• Invest in robust supplier financial monitoring (focus on private companies)

• Calculate revenue impact of a supplier

• Establish an emergency fund to prop up weak supplier with high revenue impact

• Set aside budget to secure life-time buy inventory where supplier failure is highly likely

• Don’t just monitor China based suppliers – all small companies are potentially at

risk because of the evolving outbreak and interconnected supply chain

Small Company Financial Distress Risk is Very High


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Manufacturing Dependence on Asia

Sourced: http://www.business-demographics.com/Portals/0/Files/Manufacturing%20Trend%20Data%20190723.pdf

*Estimated data due to indirect event disruptions due to coronavirus

All data provided by Resilinc on March 2, 2020

• Over 50% of global manufacturing output comes from Asia

• 2019 manufacturing GDP from Asia was more than $7.1T

• Driving manufacturing in Asia: China’s 2019 manufacturing GDP was

58.3% ($4.1T)

• Japan and South Korea is rounds out the top 3 respectively

• Japan’s manufacturing GDP is more than $1T and accounts for 14.7% of the

Asian market

• South Korea’s manufacturing GDP is nearly $500B and accounts for 6.3%

Supplier Sites vs. Disrupted Sites (Percentage / Country)

China South Korea Japan Taiwan

Supplier Sites

Disrupted (%)10.8% 11.2% 5%-10%* 6%-9%*

http://www.business-demographics.com/Portals/0/Files/Manufacturing%20Trend%20Data%20190723.pdf


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Wuhan and the surrounding cities are critical to global supply chains

Restricted areas

• Chibi, Hubei, China

• Xiantao, Hubei, China

• Zhijiang, Hubei, China

• Qianjiang, Hubei, China

• Xianning, Hubei, China

• Jingzhou, Hubei, China

• Xiaogan, Hubei, China

• Huangshi, Hubei, China

• Enshi, Hubei, China

• Lichuan, Jiangxi, China

First 10 of 50 cities on lockdown

Wuhan,

Huanggang,

Ezhou region

Industries Affected

• Aerospace

• Automotive

• High Tech

• General

Manufacturing

• Consumer Goods

• Consumer Electronics

• Food & Beverage

• Furnishing Goods

• Healthcare

• Life Sciences

• Oil & Gas

• Tobacco and E-

cigarettes

• Packaging

• Industrial Chemicals

• Power & Energy


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Unique Tier-1/ sub-tier suppliers

SITES9,000+

SUPPLIERS1,500+

36,000+ PARTS

ChinaImpacted Sites / PartsSourced from Resilinc Discovery Data Services

SPECIAL NOTATION:

Impacted Regions: Chibi, Xiantao, Zhijiang, Qianjiang, Xianning, Jingzhou,

Xiaogan, Huangshi, Enshi, Hubei, Lichuan, Jiangxi

Centers for Disease Control and Prevention Korea

https://en.wikipedia.org/wiki/Centers_for_Disease_Control_and_Prevention_Korea


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Exports from China overall touch all industries

Exports from China as a whole in 2017

Not just lockdown areas

China Export Tree map by Product (2017) from Harvard Atlas of Economic Complexity

1. 20% drop in ocean traffic

reported from China

2. Ships that have left China

ports have not been full, in

some cases 20-35% of

capacity

http://atlas.cid.harvard.edu/explore/tree_map/export/kor/all/show/2014/


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SITES1,000+

SUPPLIERS500+

2,000+ PARTS

South Korea Impacted Sites / PartsSourced from Resilinc Discovery Data Services

SPECIAL NOTATION:

Impacted Regions: Daegu, Ulsan, Busan, Gyeongsangnam, Incheon, Seoul,

Gyeonggi-do

Sourced from Centers for Disease Control and Prevention Korea

South Korea Export Treemap by Product (2014) from Harvard Atlas of Economic Complexity


http://atlas.cid.harvard.edu/explore/tree_map/export/kor/all/show/2014/


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SITES4,500+

SUPPLIERS1,000+

9,000+ PARTS

Rest of AsiaPotential Impacted Sites / PartsSourced from Resilinc Discovery Data Services

Sites supplying to impacted

sites in China S. Korea

SPECIAL NOTATION:

• Japan

• Taiwan

• Singapore

• Malaysia

• Hong Kong

• Vietnam

• Thailand

Centers for Disease Control and Prevention Korea



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SITES1,750+

SUPPLIERS1,000+

3,800+ PARTS

ItalyImpacted Sites / PartsSourced from Resilinc Discovery Data Services

SPECIAL NOTATION:

Impacted Regions : Lombardia, Veneto, Naples & Lazio

Source: http://www.salute.gov.it/nuovocoronavirus


http://www.salute.gov.it/nuovocoronavirus


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N95 Masks & Respirators Suppliers

• The coronavirus outbreak has led to global shortage and price gouging of Surgical Masks

• Resilinc identified 213 suppliers and 491 sites available in database

• 213 Supplier

• 491 Sites Worldwide

• 80 Sub-tier Suppliers

• 318 Sub-tier Suppliers Sites

• 1073 Parts Mapped on Tier 1 Sites

Assessment Summary

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7

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11

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15

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21

26

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36

189

Australia

Brazil

Thailand

India

Taiwan…

Mexico

Malaysia

Germany

United Kingdom

Singapore

France

Canada

China

Japan

United States of…


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What the CDC says about Coronaviruses

Source:

https://www.cdc.gov/coronavirus/about/prevention.html

Source

https://gisanddata.maps.arcgis.com/apps/opsdashboard/ind

ex.html#/bda7594740fd40299423467b48e9ecf6

Key Stats

Confirmed Cases 94,261

Total Recovered 51,039 (54%)

Total Deaths 3,214 (3.4%)

https://www.cdc.gov/coronavirus/about/prevention.html

https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6


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Source: https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6

https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6


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Impact planning for the coming weeks months

BEST CASE(Resolves within weeks with

more data)

WORST CASE(Months until vaccine or

effective treatment is identified)

SIMILAR TO H1N1*(3-6-month disruption)

Supply Chain

Disruption

potential

High Near Term

Severe Medium Term

High for near term

High for Medium term

High Near Term

Tapering down for medium term

HIGH for Near term in all scenarios due to global containment measures now being activated

Unlike Mexico, China is the world’s manufacturer of everything

Mortality rate, recovery data and vaccine availability will determine how long it plays out.

If people recover, or an effective treatment or vaccine becomes available then it will be under control. Vaccine timeline historically, 6-9 months.

Jan20

Jan22

Jan26

Jan28

Jan30

Feb4

Feb10

Feb13

Cases

Fatalities

Total

575,400 deaths

* H1N1 is not a Coronavirus, but a Flu virus. The similarity noted here to generate key learnings from H1N1 outbreak, that are applicable to this development

Jan20

Jan22

Jan26

Jan28

Jan30

Feb4

Feb10

Feb13

Cases

Fatalities

Jan20

Jan22

Jan26

Jan28

Jan30

Feb4

Feb10

Feb13

Cases

Fatalities


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Recovery Data: The key indicator for easing restrictions

~ 100,000 cases, ~55,000 recovered: 54%

Recovery rate can be much Higher because mild cases go unreported or unanalyzed!

In the next 3-4 weeks, more information about patient recovery is expected.

If strong, it is possible citywide lock-down or widespread quarantines (similar to China) might not by implemented by other countries

MILD: Mild Symptoms (Cough, Sore throat)

SEVERE: Shortness of breath, Pneumonia, Low Oxygen

CRITICAL: Respiratory failure, septic shock, organdysfunction

Deaths (1023 patients with Critical symptoms)

Source: http://weekly.chinacdc.cn/en/article/id/e53946e2-c6c4-41e9-9a9b-fea8db1a8f51

https://www.nytimes.com/2020/02/27/world/asia/coronavirus-treament-recovery.html

44,672Confirmed cases

Fatality Rate: 2.2% (of 44,672)

China CDC Study analyzed: 72,314 patient records

44,672 (61.8%) confirmed cases

16,186 (22.4%) suspected cases

10,567 (14.6%) clinically diagnosed cases (Hubei)

889 (1.2%) asymptomatic cases

http://weekly.chinacdc.cn/en/article/id/e53946e2-c6c4-41e9-9a9b-fea8db1a8f51

https://www.nytimes.com/2020/02/27/world/asia/coronavirus-treament-recovery.html


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• >10 years since H1N1, 8 years since MERS, 13 years since SARS…

• Most organizations’ have not updated pandemic plans

• Many organizations are completely unprepared and have no plan

• People have moved on and no one is aware of what the plan is

Where are you on the maturity spectrum to manage this event?

Pandemic and Business Continuity Plan Maturity Spectrum

No documented plan

Pandemic plan documented.

Annual refresh in place

Suppliers’ pandemic plan known

Ongoing communications in place

Annual training program

Table-top exercises

Documented plan

No refresh process

in place

Internal Pandemic

planning, refresh and

training in place

Best in class

Orchestrated response in any

scenario.

You may still be impacted, but

you will find a coordinated,

efficient and PREDICTABLE

response from your team

Unprepared

Highly vulnerable. Its

business as usual and then

it is panic when multiple

suppliers begin pushing

orders or increasing lead

times

No information about

Supplier Pandemic

planning

Supplier impact will come as a surprise. Last

minute heroics to scramble for parts/capacity

may be required

Last minute

scrambling will be

required.

Uncoordinated Scrambling for

Unknown unknownsReady but Exposed

What

you can

expect

Where

you are


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A Practical Approach to Managing Sourcing Risk

Revenue impact

of losing a

Supplier or Part

Low

Revenue

Impact

High

Revenue

Impact

Dual/Multi-Sourced Single Sourced Sole Sourced

• Monitor suppliers 24x7

• Split business to both suppliers (75%-25%)

• Map supplier’s sites to ensure they’re not in the same region

• Map sub-tiers to identify where tier 2 is the same source

• Insure: Name supplier the Corporate Contingent Business

Interruption (CBI) insurance policy


• Insure: Name supplier the CBI policy

• Qualify or Develop alternate source

• Qualify alternate site with same supplier, if second sourcing is not

feasible

• Map supply chain to part origin and identify sub-tiers

• “Encourage” suppliers to invest in robust risk monitoring and

proactive mitigation program

• Monitor suppliers for major shifts or events like corporate

restructuring, etc.

• Map supplier’s sites to ensure they’re not in the same region

• Map sub-tiers to identify where tier 2 is the same source


• Map supply chain to part origin

• Identify sub-tier suppliers and sites

• Qualify an alternate site with the same supplier

• “Encourage” suppliers to invest in robust risk monitoring and

proactive mitigation program


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• Anticipate → Protect: Develop and model likely scenarios, generate cross-

functional playbooks for simulated scenarios

• Look outside your own organization: Don’t forget, your suppliers are part of

your plan. Pandemic Readiness Survey in Resilinc’s Survey Library

• Communicate: Proactively notify leadership, customers and board about how the

organization is preparing. Anticipating worst case and planning builds confidence.

• Train: Set clear triggers for action, communicate with stakeholders (develop RACI,

governance model, stakeholder touchpoints)

• Connect the dots: Ensure plans by various functional groups are in sync, hand-

offs and dependencies are identified and incorporated into playbooks

• Joint planning with suppliers: Assess your suppliers’ pandemic planning

preparedness measures, connect the dots to your own. Collaborate on realistic

expectations.

• Continuously monitor and adjust: Create internal updates, messaging and

communicate cadence and discipline

How organizations are planning

Source: https://www.cdc.gov/flu/pandemic-resources/pdf/businesschecklist.pdf

https://www.cdc.gov/flu/pandemic-resources/pdf/businesschecklist.pdf


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How Resilinc is helping customers

• Continuous Monitoring: EventWatch is continuously monitoring new cases/fatalities/developments/town closures

• Mapping suppliers to region:

• Our Multi-Tier Mapping customers have already identified their suppliers, sites and sub-tier supplier sites in Wuhan and other lockdown areas

• Our Part-Site Mapping customers have already triangulated down to parts originating or moving through the region.

• This is based on supplier provided information in our Discovery Data Services Platform

• Supplier Impact confirmation: Our RiskShield and Multi-Tier Customers have already sent out impact confirmation through Resilinc to their suppliers. Suppliers have begun communicating and confirming impact directly in Resilinc.

• Value added Research: Resilinc provided all Customers the scenarios to model and prepare for, and recommendations and guidance to support leadership presentations about the response, as documented here (above and beyond the EventWatch alerts)

• Pandemic Readiness Supplier assessment available for customers to launch to suppliers in Survey library. Suppliers can simply approve new customers’ requests to view their response. Reduced effort for suppliers, fast response for customers!

Triangulate

impact

Prepare

suppliers


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