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February 27, 2020 - Supply Chain Flagship Newsletter

This Week in SCDigest

bullet My Take on Coronavirus and the Supply Chain
bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet Distribution Digest/Green Supply Chain
bullet Cartoon Caption Contest Continues bullet Trivia      bullet Feedback
bullet Expert Columns bullet On Demand Videocasts

The Best Solutions.
The Latest Equipment & Technologies.
The Smartest Thinking.


first thought


Supply Chain Graphic of the Week
Who will be the Power Retailers in 15 Years?

Innovative MultiStory DC
New Amazon Go Store Model
Container Volumes Tanking Due to Corona


Business Group Calls for Major Fuel Tax Hike


January 27, 2020 Contest

See the Full Image and Send in Your Entry Today!



Feature Story: More Evidence Piece Picking Robots are almost Here


pic GSC Feature Story:Wall Street Titan Morgan Stanley to Move Aggressively on Climate Change after Internal Criticism

The State of Retailer-Vendor Supply Chain Relationships 2020

Are Things Getting Better and More Collaborative - or Heading in the Other Direction? Third Biannual Study - Please Participate


Weekly On-Target Newsletter:
February 26, 2020 Edition

Cartoon, New Multistory DC, Sheffi on Corona. Lean and Time, More

Supply Chain Transformation - The Need for Speed

by Henry Canitz
Product Marketing & Business Development Director

The PO Lifecycle is Key Concept in Vendor Performance Management

by Richard Wilhjelm
VP Sales and Marketing
Traverse Systems

"Will the Real Digital Twin Please Stand Up?"

by Gary M. Barraco
Global Product Marketing


FedEx got into ground transportation service by acquiring what company in 1998?

Answer Found at the
Bottom of the Page

My Take on Coronavirus and the Supply Chain

In case you haven't noticed, something like 9 out of 10 articles on supply chain in recent days have something to do with the impact of the dreaded coronavirus crisis.

OK, I may be exaggerating a bit, but it sure seems that's about the ratio. I've read quite a few. Most were bland and boring.


Among the eye openers from this crisis is the news that the Western pharmaceutical industry is hugely dependent on finished products and ingredients from Chinese factories.


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Feedback here

So the supply chain industry needs yet another coronavirus article like the proverbial hole in the head, but I couldn't resist the opportunity to see if I could find anything interesting to add to the discussion.

Let's start with this.

Supply chain risk management rose in prominence let's say about 20 years ago. Then, we started to see some basic models for deciding what risks to mitigate, as shown in the graphic below. Those basic models - still in widespread use - have two dimensions, the likelihood of a given event, and the corresponding financial impact.

Naturally enough, those models drive companies to focus on risks that are high probability and likely to have a big impact. Low likelihood, low impact events can mostly be ignored. What to do with those risks in the middle create the tough questions.

So where would a global virus breakout fall on the basic model framework? Probably nowhere. It is what Dr. David Simchi-Levi of MIT calls one of the "unknown unknowns" - and it is not clear what to do with those risks in the existing frameworks (though Simchi-Levi came up with a very smart approach we covered several years ago that I don't have room to cover in this column).


Another observation is that while risk management has become a core supply chain discipline, the emphasis tends to wane and wax depending on events. Until this current crisis - if it really is a full blown crisis - the last major supply chain risk management inflection point came with nuclear reactor disaster in Fukushima, Japan in March of 2011.

That event - another unknown unknown - caused hundreds of Japanese factories to close for weeks, putting a big hit on output from companies across the globe, many of which had no idea their supply chains were dependent on tier 2 or tier 3 suppliers they didn't even know existed.

It also generated one of my all-time favorite supply chain quotes from mighty Toyota's head procurement, who said, paraphrasing from memory just a bit, "We thought we had complete control of our supply chain. It was an illusion."

I am going to come back to the key point here at the end of the column.

What is interesting to me is just how quickly the coronavirus impact is felt even in areas well outside the few hot zones. For example, Maersk Line, the largest ocean container carrier, has canceled more than 50 sailings from China to the rest of the world since late January. That represents hundreds of thousands of containers full of goods and components that will be significantly delayed getting retail shelves or factory floors.

Airlines are now massively cancelling flights into and out of China. The same thing is happening now for flights to/from Italy, where a modest virus outbreak has occurred.

It won't take a whole lot more for global commerce to basically shut down - and what happens then? Economic chaos at minimum, that's for sure.

Among the eye openers from this crisis is the news that the Western pharmaceutical industry is hugely dependent on finished products and ingredients from Chinese factories. If that supply chain is cut off for any extended period, you may soon not be able to go down to CVS to pick up your prescriptions because the drugs just won't be there.

The Wall Street Journal last week wrote an interesting article noting how much the supply chain world has changed since 2003, when there was another but relatively contained coronavirus outbreak in China. Keep in mind China only joined the World Trade Organization, which dramatically expanded its market reach, at the end of 2001.

In 2000, China's share of global trade was 1.2%. It was 34% in 2018. Interestingly, the rise has been much less in US trade, where China's share has grown from 2.1% in 2000 to a much smaller 7.2% in 2018, but that still more than tripled over the period.

So when China's supply chain get a cold - in this case unfortunately in a sort of literal sense - the rest of the world might get pneumonia.

The Journal piece includes the story of Mostafiz Uddin, who owns a bluejeans manufacturer in southeastern Bangladeshi. He said he has been unable to fulfill an order for 100,000 women's jeans because he can't get the fabric he needs from China.

"I am just waiting," he said. "We have no option."

Or consider Australia, still heavily dependent on exports of coal, iron ore, wheat and other commodities to fuel its strong economy. China accounted for nearly 40% of Australia's exports in 2019. Coronavirus is a huge risk to its economy even if it doesn't get a single case.

This with, if I may daresay, at least for now what is a relatively small level of cases outside the worst areas of Wunan city in China. If this thing really does become something like a pandemic, the costs will monumental.

Dr. Yossi Sheffi, also of MIT has written a couple of excellent books on supply chain risk management (e.g., "The Resilient Enterprise"), so he comes with some credentials in terms of offering thoughts on the current coronavirus crisis.

Writing recently in the Wall Street Journal, Sheffi offers five actions companies should consider right now:

1. Set up a central emergency management center: At this point it can be virtual but should include a clear roster of participants with clear decision-making rules in case of a pandemic.

2. Review the company's product portfolio and the customer base in order to set priorities: If capacity is reduced, there will need to be rules for which products should be built and which customers should be supplied first.

3. Review suppliers: Who makes critical parts? Are there alternate sources? What is the suppliers' inventory status?

4. Plan for operating to maximize cash flow rather than profits.

5. Maintain communications with federal and local authorities, as well as Chinese and other Southeast Asian friends and colleagues on the ground.

I am going to focus on number 3, relative to the point I said I would come back to regarding Toyota - and that is the need to map your supply chain at multiple tiers, an exercise Toyota undertook with vigor after Fukushima - but never could fully complete.

But such an exercise will prove very valuable in the event of the next unknown unknown in terms of rapid understanding of potential disruptions. That mapping can also uncover risks a company didn't know it had - for example, as many companies found in 2011, that in some cases dual sourcing to reduce risk was for naught because both of the two suppliers were dependent on the same single source for a part or other input.

So what's the takeaway from all that? I would say that most of our risk models are still not sufficient for the job - and too much reliance on China is a very risky proposition indeed.

What are your thoughts on coronavirus and supply chain? Let us know your thought at the Feedback section below.


On Demand Videocast:

Understanding Distributed Order Management

Highlights from the New "Little Book of Distributed Order Management"

In this outstanding Videocast, we'll discuss DOM, based on the new Little Book of Distributed Order Management, written by our two Videocast presenters.

Featuring Dan Gilmore, Editor along with Satish Kumar, VP Client Services, Softeon.

Now Available On Demand

On Demand Videocast:

The Grain Drain: Large-Scale Grain Port Terminal Optimization

The Constraints and Challenges of Planning and Implementing Port Operations

This videocast will provide a walkthrough of two ways to formulate a MIP, present an example port, and discuss port operations.

Featuring Dan Gilmore, Editor along with Dr. Evan Shellshear, Head of Analytics, Biarri.

Now Available On Demand

On Demand Videocast:

A Blueprint for WMS Implementation Success

If You Want a Successful WMS Project, You will Find the Blueprint in this Excellent Broadcast

This videocast lays out the keys to ensuring your WMS implementation goes smoothly, involves minimal pain, and accelerates time to value.

Featuring Dan Gilmore, Editor along with Todd Kovi of Radix Consulting and Dinesh Dongre of Softeon.

Now Available On Demand


We received several emails on Gilmore's First Thoughts column on Can - and Should - US Manufacturing be Saved 2020?


The offshore trend over three decades has been an overall disaster for the US economy and large swaths of the country, such as the Midwest.


My hats off to these two commentators who are finally calling the situation for what it is.


Ron Grove

I think the issue is more complex than what Kota and Mahoney say, but at the same time this is a perspective that oddly is not argued more often?


Why isn't the National Association of Manufacturers (NAM) leading a similar charge?


David Smeltzer
Barberton, OH


I had no idea US government investment was being used to in effect the movement of jobs to China and elsewhere.


Why isn't this some type of public scandal?


I completely agree that laws should be enacted that "would ensure any licensee of federally funded research results should be required to manufacture at least 75% of the value added in this country."


Dale Springer


Q: FedEx got into ground transportation service by acquiring what company in 1998?

A: Caliber Logistics.

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