The extended shutdown of China’s manufacturing sector due to the coronavirus is likely to affect all companies and their competitors.  Here’s how you can out-plan your competitors and weather this economic storm more gracefully.

Every business relies on a supply chain through China.  Just because a company doesn’t have major vendors in China, doesn’t mean it is immune.  The Lenovo ThinkPad I am typing on was made in China.  The parts for many office copiers come from China.  Auto parts come from China.  Paper clips come from China.

China shuts down every year for a month to celebrate Chinese New Year’s, and the world, knowing that, bulks up on inventory to cover the down time in manufacturing.  But now that most of China’s manufacturing capacity has been down for another two weeks (50% more down time), world inventories of hundreds of thousands of products are dwindling.  Shortages may soon happen, and every week that this crisis continues, the depth and duration of those shortages will grow.

I was working with a peer group yesterday, and one of them manufactures his athletic equipment in China.  Four months ago, based on gut feeling of rising demand, pumped up his orders 30%.  He counts himself lucky, and that is the only reason he’s going to run out of stock later than most of his competitors.  He wished he had doubled it!

Please hold a leadership team meeting and challenge your group to discuss what actions you should take NOW to mitigate the risk of an extended interruption of China’s economy.  Key questions:

1. How will this affect your customers, and your customer’s customers?
2. How will this affect your vendors, and your vendor’s vendors?
3. Review a list (that you should make) of products/supplies you use that are made in China.
4. What actions, small or large, should your team take, and by what date?

If the virus doesn’t wrap up very quickly (with China going back to work) your company will be in one of two categories:

1. Companies whose core products have supply chains running through China (or sell into China, or whose main customers will be hobbled by this crisis) are likely to face a severe downturn, with revenues dropping.  They may need to begin downturn preparations, cutting costs and saving cash, while looking for other supply options (hard, because everyone is, but still essential).
2. Companies who otherwise would be unscathed will be hurt by not being able to get mundane but essential supplies like computers, phones and spare parts.

What to do now:

1. Out plan your competitors.  Meet now to look into the future.  I hope this all blows over quickly, but if it doesn’t, better to be prepared.
2. Most companies should advance any incidental purchases (that run from China) needed in the next 3-6 months.  Think things like new computers, phones, toner for the copier, spare parts, anything consumable that is made in China or has parts made in China.  It could be as little as $5K-$50K in expense, coming out of cash 3-6 months earlier and beefing up office supplies or other inventories.  If you would have bought it anyway, why not move it up?  It’s hoarding, but I’d rather see our clients hoard what they need before their competitors do it!
3. For those who resell products wholly or partially coming from China, deepen your inventories if it’s not already too late.