Tag: coronavirus

OM in the News: Ships Are Skipping China

February 2020 will come to be remembered as a period of historic disruption to physical supply chains the world over, as the coronavirus wrecks trade. Dozens of export sailings to ship China-made goods to consumers from the U.S. to Europe — think handbags, flat-screen TVs, and plastic toys — have been canned since the virus crisis escalated last month. Those non-shipments are part of a much bigger picture in which every aspect of global shipping — from oil and gas through to dry-bulk commodities — has been upended.

“The unprecedented gyrations caused by the virus matter because 90% of all trade moves by sea and China has grown into the maritime industry’s main source of cargoes,” writes Material Handling & Logistics (Feb. 18, 2020). The disruptions have left toymakers like Hasbro and fashion houses like Versace and Jimmy Choo struggling with their supply chains. Vessels are idling. And exporters to China face diversions as clients there use clauses in their contracts to walk away from commitments to buy cargoes. “All the signs are that there has been a major dislocation in global supply chains,” says a trade economist.

All this has come about because the virus has led to hundreds of millions of people being told to stay away from work or education in China, squeezing output in the world’s fastest-growing major economy.
The number of blank sailings — where ships don’t load at a planned location — has jumped since the outbreak began. Almost 600,000 20-foot boxes are currently out of action as a result of the virus.

Hasbro says that the virus is disrupting its commercial operations in China — from where it had already been seeking to diversify its supply chain. Hyundai halted some of its car production because of component shortages caused by the virus. Fiat Chrysler is planning to halt operations at its assembly plant in Serbia due to a lack of parts from China.

Classroom discussion questions:

  1. How does a logistics manager deal with this situation?
  2.  Can airfreight help replace shipping?

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

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?

OM in the News: Coronavirus Tests Apple’s China Dependency

Coronavirus has given new meaning to something Apple executives have been saying for years: Apple needs another China. The rapid spread of the virus and the disruption it has caused is the latest test of Apple’s dependency on China as its manufacturing base for most of the iPhones, iPads and Macs sold world-wide.

To curtail the virus’s spread, local governments have asked people to stay away from work. Shipments of parts and components to the Apple assembly plants are curtailed, and workers who went home to celebrate the Lunar New Year may not return, out of caution. Foxconn, Apple’s main manufacturer, is contending with a strict quarantine in Zhengzhou city, home to its largest iPhone plant.

Apple has successfully weathered a number of challenges involving China in recent years, writes The Wall Street Journal (Feb. 8, 2020). But it is among the foreign companies most vulnerable to the outbreak because it hasn’t diversified its manufacturing. Though it looked at assembling iPhones outside China, it found the costs of facilities and training too high and opted to keep exporting from China. Apple’s leaders have long considered its reliance on China-based manufacturers as both a strength and a vulnerability. Apple worried more about a disruption in exports from the country than loss of sales inside Greater China, a market that accounts for 1/5 of revenue.

Samsung, the world’s largest smartphone maker, wound down production in China last year as part of a years-old strategy of diversifying its manufacturing base by shifting production to India, Vietnam and elsewhere.

Apple is known for its operational prowess and has a record of navigating supply-chain challenges. After an earthquake triggered the Fukushima nuclear crisis in Japan in 2011, Apple quickly created a new factory to maintain production of optical drives it needed for its devices. When monsoons flooded factories in Thailand later that year, Apple turned to the Thai Navy to load boats with the heavy equipment necessary for production. But those events only affected a sliver of Apple’s supply chain. Coronavirus affects the very heart of it.

Classroom discussion questions:

  1. Referring to Supplement 11 in your Heizer/Render/Munson text, draw a decision tree for Apple’s disaster risk.
  2.  What can Apple do at this point if it thinks the virus will have a 6-month impact on supply chains?

OM in the News: Building a Hospital in Wuhan, China in 10 Days

Among the serious issues facing China as the coronavirus continues to spread, are the impact of the border, factory, and store closings, and shutdowns which are beginning to affect global supply chains from auto parts to iPhones (see our blog on Feb. 2, 2020). Facing criticism that the official response to the outbreak was delayed, the Chinese government has stepped up containment. One of its initiatives was to build two new hospitals in Wuhan –in 10 days! Since our Chapter 3 video case study, “Project Management at Arnold Palmer Hospital,” details that 60 month construction task (which included 13 months of planning), this OM project is worth discussing with your class.

Here is how The New York Times (Feb. 4, 2020) describes the task, which began on Jan. 24th:

Construction teams of 7,000 workers with armies of trucks and excavators dug and scraped around the clock. The city government completed a feat recalling the SARS epidemic of 2003, when Beijing built a hospital in a week. For China, the new Wuhan facility would also serve as a potent symbol of the government’s drive to do what needs to be done. Leaders pledged to build the 1,000-bed complex in 10 days and vowed that another new 1,600-bed hospital would be ready by Feb. 5.

Wuhan, a city of 11 million, has been eerily quiet since the authorities locked it down, preventing residents from leaving and severely limiting public transportation and private cars. But the roads around the hospital building site were packed with cement mixers, trucks and other construction vehicles. Migrant workers and suppliers of materials were roped in to build the complex. Workplace safety precautions included temperature checks to try to detect signs of coronavirus infections. By Feb. 3rd, ambulances begun transporting patients to the new hospital.

Classroom discussion qestions:

  1. How did this project differ from the construction of the Arnold Palmer Hospital in Orlando?
  2.  Could this project be replicated in the US? Why or why not?

 

OM in the News: The Virus and Global Auto Supply Chains

The coronavirus outbreak, which has all but sealed off China’s Hubei province from the rest of the world, could have an outsize impact on the global auto industry, which has a large footprint in the region in central China. reports The Wall Street Journal (Feb. 2, 2020). The virus’s spread has disrupted car manufacturing in China and prompted major auto companies with operations there to restrict travel and ask employees to stay home. One German auto supplier said that at least 5 employees had been infected.

The Chinese auto industry has grown from virtually nothing 30 years ago to become the world’s largest market for new vehicles. Wuhan, Hubei’s capital, has in that period emerged as an auto-making hub, home to state-owned Chinese Dongfeng Motor and numerous assembly plants for Honda., Peugot, and GM. Auto makers in Wuhan were expected to produce 1.6 million vehicles this year, contributing 6% of overall Chinese output.

Honda said it wasn’t sure when its 3 vehicle plants in Wuhan would reopen in light of the epidemic. These factories can build 600,000 vehicles/year–half of Honda’s total capacity in China. Webasto, a German auto-parts supplier, stated that four employees in Germany had contracted the virus after an employee from China visited headquarters. Bosch, the world’s biggest auto components supplier, warned that coronavirus could impact its global supply chain, which is heavily dependent on China. (Bosch relies on China for exporting electric motors, transmission and power electronics for electric cars).

The virus’ impact is not only on production and distribution of vehicles in China, but has major implications on global supply chains in other manufacturing arenas. Foxconn said it would keep its Chinese factories closed until mid-February. The move could affect global supply chains for tech companies that rely on Foxconn to manufacture everything from Apple’s iPhones to flat-screen TVs and laptops.

Classroom discussion questions:

  1. Might this disease have a lasting impact on global supply chains?
  2.  What other industries are being affected in the US?