DC Velocity - March 2020

56 DC VELOCITY MARCH 2020 www.dcvelocity.com
MARK FEB. 18, 2020, AS THE DATE PHASE 2 OF THE CORO-
navirus media coverage commenced in earnest.

Prior to that date, coverage of the epidemic focused primarily on the virus’s health effects and human toll—and rightly so. The toll is considerable. As of Feb. 17, some 73,000 people had been diagnosed with Covid- 19, as the coronavirus is officially known, and 1,874 had succumbed to the illness, with all but five of the fatalities in Mainland China. In addition to being the source of the outbreak, China has been the hardest hit, with 99% of reported cases clustered in its central Hubei province.

So when reports began trickling in from China suggesting the tide might be turning, health officials the world over heaved a sigh of relief. On both Feb. 16 and 17, China reported a decline in the number of new cases—which its own Center for Disease Control interpreted as a sign the outbreak might have peaked. It’s too early to tell if this is a sustainable trend line, but at minimum, there is finally an indication the world might be getting ahead of this scourge.

But the fallout is far from over. As a Feb. 18 story in The Washington Post reminded us, Covid- 19 isn’t just a global health issue; it’s a global business issue. The article, titled “Global markets shudder as Apple’s warning deepens coronavirus fallout,” looked at the unfolding coronavirus story from a business perspective. It used as its jumping-off point Apple’s announcement the previous day that coronavirus-related disruptions to its supply chain would cause it to miss its quarterly earnings target. And its authors warned that Apple’s announcement was likely just a precursor to a tidal wave of similar announcements.

Phase 2 has commenced.

As the weeks and months roll on, we can expect to see a steady stream of news stories (and none of them likely positive) about the economic fallout of this virus. A survey conducted by the American Chamber of Commerce in Shanghai found that 87% of U.S. companies operating in China expect the coronavirus to impact 2020 revenues. Of those forecasting a drop, 24% expect revenues to fall by 16% or more.

Although the coronavirus outbreak remains a developing story,
it’s never too soon to look for what can be learned from this
experience. One of those lessons, says Glenn Richey, professor of
supply chain management at Auburn University in
Alabama, is the need to create a Plan B. For compa-
nies that do most of their sourcing or manufactur-
ing in China, that would most likely mean develop-
ing multiple sources in multiple countries—possi-
bly including some closer to home.

That isn’t always easy, Richey acknowledged in
a Q&A posted on the school’s website. “Savvy
business leaders are weighing their options—par-
ticularly regarding products and services that are
sole-sourced from China,” he said in response to
a question on how companies
operating in that country can
reduce their exposure to risk.
“There’s an analogy with what
Amazon is doing with its distri-
bution centers—building prod-
uct distribution facilities clos-
er to where their demand is to
fulfill their next-day and same-
day delivery promises. But in
this case, it isn’t time they are
seeking; it’s local and region-
al availability of manufacturing
and assembly operations. This
move to ‘near-sourcing’ requires
an initial capital outlay, but the
payback can be significant in terms of reducing
supply chain risk over the longer term.”
As a practical matter, developing and implement-
ing a Plan B—even one that includes relocating
manufacturing to these shores—is unlikely to yield
results in time to alter the Phase 2 story line. That
chain of events has been set in motion. But that’s not
to say there’s no point to the exercise. Developing a
strategic Plan B could both strengthen global supply
chains and prevent a similar crisis down the road.
And it is never a bad idea or too soon to do that.