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Coronavirus Exposes Known Unknowns in the Supply Chain

Chinese shipping container with face mask
With all the chaos surrounding the coronavirus, I don’t blame Chinese factories for shipment delays. Just as we wait for their production and delivery schedules, they wait for their suppliers’ timetables. We are blind to the Tier 2 and 3 shops further down the supply chain, and that must change.

“When are you scheduling the next production run?” I’m shouting into the phone, hopelessly optimistic that my screams will somehow, someway induce my Wuhan supplier to make my client’s electrical harnesses that were due six weeks ago . . . to no avail.

The factory remains shut down until health inspectors give the OK to resume work. And even if it passes, the hundred or so employees can’t get back to Wuhan from the lunar New Year holiday, a time when millions of migrant workers return to the countryside to visit relatives. It’s a long, painful waiting game.

This has been the scenario, more or less, since the Wuhan lockdown on January 23. “It’s tough,” exclaims Romy Taormina, CEO and founder of Psi Health Solutions, a maker of wrist bands for the relief of nausea. “I’m not getting products in time, and I’m paying higher costs to air freight them in. I’m promised a shipment in mid-March, so we’ll see what happens.”

I’m getting an earful of comments like these — a lot of empty promises. One of my clients was promised a container load of injection-molded plastic kitchenware by late February. It still hasn’t come. Another client was assured he would receive a million insert-molded electronic circuit boards this week. Those circuit boards haven’t arrived either.

With all the chaos surrounding the coronavirus, I don’t blame the Chinese factories. They’re doing the best they can with limited information and uncertainty looming day to day. Just as we wait for their production and delivery schedules, they wait for their suppliers’ timetables. 

This is where I believe much of the confusions lies. We are blind to our suppliers’ suppliers, the Tier 2 and 3 shops further down the supply chain. Among the forty clients I have, I estimate that about 80% of them have zero knowledge of the Tier 2 players.   

We’re shooting in the dark if we don’t have eyes and ears on the secondary suppliers. Autozone CEO William Rhodes told investors on a call, “The next couple of weeks to a month are going to be critical to see what actually happens. We don’t have good insight into that.”

Kingston Technology, the largest manufacturer of third-party memory modules, relies heavily on China’s supply chain for packaging, circuit boards, and surface mount components. “We’re not just communicating with our main suppliers,” said Kingston President John Tu. “We have personnel at our ground zero suppliers — resin producers for our circuit boards and pulp producers for our packaging.  We need to put pressure on the Tier 2 partners for our Tier 1 suppliers to have any chance of meeting our schedules, especially in this unsettling climate. It’s a must.”

I’m spending the bulk of my time with Tier 2 suppliers to properly assess and confirm the Tier 1 suppliers’ schedules. For example, an automotive electrical harness is made up of multiple components coming from multiple suppliers. I have weekly calls with the complete supply chain for wires, connectors, rubber seals, logistics, testing, and final assembly. Only then do I feel comfortable enough to sign off on a delivery schedule for my American client. 

This undoubtedly will be the new course of action as we face a near coronavirus pandemic. “Brands should strive to have full visibility with their supply chain across all tiers,” said Rodney Manzo, CEO and founder of Anvyl, which provides supply-chain management software as a service. “Only a few companies today have full visibility of their supply chains. Most companies are struggling with this.” 

The virus appears to be subsiding in China, as the death rate and new cases decrease daily. I’ll soon be heading back to China to visit a dozen Tier 2 and 3 suppliers: A resin manufacturer in Anhui, a plastic injection molder in Zibo, and a glass blower in Xian are all on the schedule. Gone are the days when we sauntered into the big offices of one-stop black-box makers like Foxconn or Flextronics and expected everything to come out hunky-dory. Desperate times require desperate measures.

Lead image: Ink Drop/Adobe Stock

About the author

Stanley Chao is the author of Selling to China, and Managing Director of All In Consulting.
Follow him on Twitter, @stanleychao6.

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