How Coronavirus is Affecting Manufacturing — Just over a month ago when the first media reports came out about a new sickness in China, called coronavirus, most of us in the U.S. shrugged it off as a meaningless headline in the 48-hour cycle that drives our country when it comes to news. Fast forward a month and global stock markets are in a free fall, airlines are cancelling huge swaths of flights worldwide, international conferences are being scuttled, and the CDC doesn’t seem to have any definitive solutions. They are only saying it’s not if, but when the new virus will spread in the U.S. On February 27th the Dow Jones suffered its largest one-day drop in history. Today doesn’t seem to be getting better, with the Dow headed toward its worst week since 2008.
So how does all this legitimate concern over a new virus that started on the other side of the world affect manufacturing in the USA? First, remember we live in a global economy. Foreign trade is critical to our success as a nation. China and the US are each other’s largest trade partners and we account for approximately 20% of their exports, to the tune of almost $500 billion annually. This isn’t just finished goods, but also raw and partially finished materials that U.S. manufacturers count on as part of their supply chain.
For some manufacturers, this could actually lead to an upswing in business, as companies turn to U.S.-based vendors to fill gaps over the short term. Great problem to have except that you don’t know how long these “bonus” orders will last, and they put stress on your operations. The last thing a metal fabricator state-side should do is upset a loyal client, just for temporary revenues from a price-conscious, non-loyal customer who will disappear just as quickly as the epidemic came, once coronavirus concerns die down.
For other fabricators who rely heavily on China in order to produce finished products, yesterday was the time for contingency planning, and now is the time for pure hustle and resourcefulness. Try to negotiate new terms with your Chinese suppliers, spread order fulfillment across key customers (with their consent of course), and look for new domestic supply options. Even if your margins take a hit. It’s always easier to improve margins on the supply chain side than to replace lost sales revenue with new customers.
Manufacturing in the U.S. also needs to think about the distribution side. If global markets are a source of revenue for your business, start planning on slowing demand now, as international businesses slow, at least for the short term. Many companies are restricting travel and alternating work days in an effort to reduce the risk of sickness.
Last, since the CDC says it’s “when” and not “if” coronavirus spreads to the USA, expect employees to be out sick at some point. If your business is human capital intensive, start planning now, to prevent a double hit (demand disruption currently, and production issues later this year). Cross train employees, consider automation where it makes sense and set up lines of credit now. It’s always easier to get access to capital when you don’t need it, and extremely difficult when the banks know you do have a need.
Just when you thought manufacturing in the USA was tough enough…Never-ending price pressure, quality control, off-shore competition, and now a new flu virus. Sometimes it feels like you have to be a miracle worker to make stuff stateside. But then again, nobody said it would be easy, and if it was, then you’d have even more competition. Stay healthy and press on!