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OM in the News: World Economy Shudders as Coronavirus Threatens Global Supply Chains

February 25, 2020

Travellers are few at this Chinese railway station.

The last time a virus outbreak hit China, in 2003, the global economy emerged  unscathed. Now, nearly 2 decades later, the effects of the coronavirus threaten to ripple around a world transformed by China’s boom. Chinese consumption and production power growth from Asia to North America, Europe and beyond. Manufacturers world-wide are tethered to China by the tentacles of a supply chain that relies on the country’s factories for many intermediate and finished goods. “This is a once-in-a-generation event,” said one CEO.

With fears of contagion keeping Chinese workers home, production is getting pinched, writes The Wall Street Journal (Feb. 23, 2020). In the U.S., GM warned that a lack of China-made parts could slow assembly lines at plants in Michigan and Texas. Hyundai suspended one of its main assembly lines in Ulsan, S. Korea, because it couldn’t get parts from China. Asiana, S. Korea’s 2nd-largest airline, put its 10,500 employees on staggered shifts of 10 days’ unpaid leave. Videogame giant Nintendo said that shipments of its flagship Switch gaming console are delayed as it can’t get parts from Chinese factories. Apple won’t meet revenue projections for the first quarter as the epidemic shuts its China plants. Container-ship operators are preparing profit warnings as dozens of trips out of China are canceled. In Vietnam, an economy highly dependent on Chinese supply chains, exports in January fell 17%.

Major electronics producers that depend on Chinese parts also have suspended output because of the outbreak. Others are weighing relocation. Japan’s exports to China are expected to drop 7% this quarter from the prior one. An extended Chinese shutdown could cripple global manufacturing and cost the world up to $1 trillion in lost output. “The  current situation is more serious than we thought,” said S. Korea’s president.

Classroom discussion questions:

  1. How can companies evaluate disaster risk in their supply chains? (See Supp. 11 in your Heizer/Render/Munson OM text)
  2.  What impact will this virus have on supply chains in 90 days if it is not contained?
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