Advisen

Coronavirus to test "the brittleness of the supply chain"

By Erin Ayers, Advisen

As coronavirus spreads, it will test businesses – and their continuity plans -- around the world that depend on the people and products in affected regions, according to one of the world’s largest property insurers, FM Global.

While still in the early stages, coronavirus has spread rapidly from Wuhan, China, with the confirmed case number rising to over 20,000 in over 25 countries. There have been 427 deaths and governments around the world have put in place travel advisories and quarantines to try and limit the spread. The respiratory ailment represents an easily-transmitted strain that is fast reaching pandemic levels, according to experts.

The outbreak has already had a significant impact on the stock market in China.  For businesses, coronavirus will have a real impact on supply chains and productivity, according to with Dr. Louis Gritzo, vice president and manager of research for FM Global.

“It’s really a litmus test for how well they have planned for any kind of disaster,” he told Advisen. While business continuity plans may bring to mind natural disasters or cyberattacks, any event that causes a disruption for an organization should be factored into planning.

For an illness outbreak, there are key differences from natural disaster recovery, Dr. Gritzo explained. For one, quarantines in affected regions prevent relocating employees to an alternate worksite. And, unlike natural disasters like hurricanes or earthquakes where access to a worksite may be limited for a few days, quarantines can last weeks.

For now, companies relying on products and materials from China may not be feeling the effects yet, according to Dr. Gritzo.

“In today’s just in time world, product manufacturers still probably have a stock,” he said. As the virus outbreak wears on, “the brittleness of the supply chain starts to show up.”

“They’re going to be at some point subjected somewhere in their supply chain,” said Dr. Gritzo, adding that a good continuity plan will always have considered how long it will take to identify new suppliers and how long certain business processes can be down or slowed before overall business and productivity is affected.

“This is going to put them to the test,” he said.  “When that brittle chain breaks is not going to be tomorrow, it’s going to be in a few weeks.”

FM Global has seen a few business interruption claims due to coronavirus, but it is still in the “very early stages,” Dr. Gritzo said.

One early lesson learned has been the speed with which an outbreak can travel all over the world, unlike a hurricane or storm that builds over several days and affects a general region. The speed of the coronavirus risk requires a quick response.

“Can your plan be enacted in a moment’s notice?” asked Dr. Gritzo. “If it takes a lot of time, it’s not a business continuity plan.” He advised evaluating all business processes and determining which ones can safely be shut down – and which ones cannot be shut down.

“A good business continuity plan will not be hung up on the causes, but on the response,” he said.

Editor Erin Ayers can be reached at eayers@advisen.com.