High tech companies eyeing supply chains as coronavirus outbreak continues

High-tech companies in Canada and around the world are eyeing their supply chains as the impact of the novel coronavirus in China on manufacturing plants is starting to be felt. The quarantine in Hubei province, where the new coronavirus first emerged, has raised worries about output from China’s manufacturing sector, which supplies goods the world over. 

“I can see the impact starting to emerge,” said John Sicard, CEO of Ottawa-based supply-chain management firm Kinaxis, which works with clients in Canada and abroad.

Companies around the world rely on China to supply electronics parts, partially assembled goods and finished products, he said.

“Obviously that will have a pronounced impact, I believe, in terms of the availability of supply,” Sicard said.

If one part is missing it can halt production

Many goods in the high-tech sector are put together on assembly lines. He said if one part is missing or is in short supply, it can halt production entirely. The coronavirus outbreak struck during the Lunar New Year, a time when factories ordinarily close for the holiday, but many have yet to reopen. While there’s no way to know how significant the impact will be, experts agree the challenge grows the longer the coronavirus threat goes on.

“All we have right now is a big black cloud of uncertainty,” said Lora Cecere, the founder of Supply Chain Insights, an American research and consulting firm.

She said the last disruption on this scale was from the 2010 eruption of the Eyjafjallajökull volcano in Iceland, which spewed a giant cloud of ash and interfered with air traffic more than anything since the Second World War. The difference between the coronavirus quarantine and other disruptions in high-tech supply chains is the travel restrictions, keeping people from getting to work and potentially keeping goods from being shipped, she said.

Diversify the suppliers

In some cases, factories in neighbouring countries have also barred Chinese workers, making it difficult for companies to find alternative manufacturers to tide them over. Some companies learned a lesson when trade tariffs were imposed against China by the United States late last year, and looked to other countries to diversify the suppliers that manufacture their products as a contingency, but that wasn’t the case for all.

“Some people are single-sourced and it’s a problem,” Cecere said.

The issue has risen to the attention of most companies’ CEOs, according to Bob Ferrari, the founder of Ferrari Consulting Group in Boston and a specialist in global supply chains. But even as they question how long this delay in manufacturing for will continue, supply chain experts agree it’s not yet time to panic.

“Nobody can get their head around the fact that we don’t know how big this is yet,” Ferrari said. “Nobody wants to spread alarms, we shouldn’t, so we’re just going to wait and see what’s going on.”

While the greatest fear is that the viral outbreak will spread beyond China’s borders, causing factory shutdowns in other countries around the world, it is so far largely contained within China. Without any clear indication of how long the quarantines and travel restrictions in the region will last, or how far the virus will spread, there’s no way to yet understand what the impact will be on companies’ bottom lines, he said.