Coronavirus Risk Assessment...Major exporters, such as Canada, Brazil and the US, reside in the western hemisphere, which has experienced minimal coronavirus outbreaks. Foreign manufacturers,

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Coronavirus Risk AssessmentManufacturing

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01

Mechanical Appliances Manufacturers

Heavy Machnery Manufacturers

Slowed production and plant closures in China due to the virus have resulted in lagging supply chains and longer

lead times. These disruptions have increased production job losses in the US, particularly in the Midwest

manufacturing hub. Many companies have reported further revenue losses in an industry already suffering

from trade barriers and a tightening labor market.

Output from the heavy machinery industry is declining due to reduced working hours and suspension of

overtime to limit operating costs in affected areas. Roughly a quarter of suppliers in this industry operate in

China, which are closed or are operating at reduced capacity.

Furniture & Related Product Manufacturers

Extended delays are expected for manufacturers of furniture and related parts with operations in China,

which is expected to strain domestic supplies for furniture wholesalers and retailers. However,

short-term supply is stable for manufacturers that front-loaded their inventories to stay ahead of tariffs

placed by US and China.

Computer & Electronic Products Manufacturing

The technology industry strongly relies on low-cost Chinese labor to manufacture electronic

components, primarily including computer chips, for various consumer goods. Despite recent

production halts and mass quarantines in major manufacturing hubs, like COVID-19 (coronavirus) epicenter Wuhan, some factories have resumed

production at lower capacities to limit major backlog and financial impact.

Aerospace Manufacturers

China, a major component supplier for Airbus aircrafts, had completion centers shut down amid the initial

outbreak. Longer plant shutdowns may increase Airbus’ backlog, increasing the financial impact of COVID-19

(coronavirus) on Airbus’ business. While some US manufacturers, such as Boeing, will face fewer

repercussions because factories and upstream suppliers operate domestically, declines in downstream demand due to more limited international travel activity may harm profit.

Risk Level Key

Medium

High

Low

Industry Risk Analysis

Most businesses are expected to experience

some degree of disruption to operations due to a

limited supply of manufactured goods. Even

businesses with large inventories are at risk if the

outbreak persists.

Supply ChainRisk Analysis

2nd Tier Suppliers 1st Tier Suppliers Vendor Key Buyers

Ore Miners & Refineries

Northern China, the global steel production hub, has

fortunately not experienced the same degree of viral outbreak as the central

Chinese provinces. Rather, steel and aluminum output

has been recovering strongly following US tariffs

on imports, and supply is currently exceeding

demand. High output from these suppliers is expected

to weaken global metal prices. However, refineries

that import ore are still vulnerable to transportation

disruptions as Chinese ports idle.

Commodities & Raw Materials Manufacturers

Factory closures and transportation blockages

will largely impede the processing of commodities and raw materials used in

manufacturing. As a result, manufacturers have been scrambling to source from alternative countries that

do not rely on Chinese goods in their supply chain. Fortunately, some Chinese factories are reopening at

40 to 70% capacity, but are still negatively affected by

logistics delays.

Manufacturing Companies

Businesses

Consumer Groups

Most consumers can postpone purchases of

manufactured goods. Low supply and inflated pricing will deter many consumers

from making short-term purchases in favor of a

better pricing environment in the future.

Government buyers are facing longer lead times,

especially for smaller manufactured goods like microelectronics. Delayed

orders will negatively impact operations and the entities’ ability to provide

services.

Government Entities

Further escalation of the coronavirus outbreak

poses a high risk to the manufacturing sector due

to manufacturers’ high dependence on low-cost

Chinese labor for production. Mandatory

quarantines have limited the amount of viable labor

available to keep manufacturers’ operations afloat during the outbreak.

Vendors may also face financial repercussions

from cancelled orders due to delays.


02

Timber & Logging Companies

Timber and logging companies have been largely unimpacted. Major exporters,

such as Canada, Brazil and the US, reside in the western

hemisphere, which has experienced minimal

coronavirus outbreaks. Foreign manufacturers, however, may still face

delayed shipments due to third- party logistic providers operating out of China that

are experiencing labor shortages.

03

Mitigating Supply Chain Risk

Related Market News

The Institute for Supply Management manufacturing index, which measures manufacturing expansion, has begun to slow.

The global manufacturing Purchasing Manager’s Index (PMI) has had its steepest contraction since the recession, with the largest decline in output from investment goods manufacturers like heavy machinery.

Apple reduced its quarterly guidance to account for slower production conditions in its Chinese factories. iPhone supply and the introduction of new apple products are expected to slow during the coming months.

Best Practices for Manufacturing

Supply contracts are typically multiyear agreements which makes it difficult to completely switch suppliers. Many mid-western manufacturers have instead moved to dual-sourcing raw materials and supplies from domestic suppliers and those located abroad to combat delayed production from Chinese and other impacted factories.

Multinational manufacturers should strategically increase production in countries with low viral risk to help meet demand. Factories with more diverse manufacturing capabilities (as opposed to specialized factories) will help manufacturers make quick transitions.

Manufacturers may be able to negotiate partial shipments with suppliers and downstream buyers to maintain the purchasing relationship. Manufacturers should weigh the feasibility of accepting smaller orders now to limit business disruptions and short-term financial impacts of incomplete orders instead of canceling contracts and sinking resources into finding new suppliers.


03


VendorRisk Mitigation

Company-Wide Best Practices

Designate a company director as the coronavirus “point person”: In an effort to mitigate risk across an organization, companies should consider selecting a single person (ideally a human resource professional, someone in the legal department or a workplace health professional) to be involved in all personnel decisions related to the coronavirus.

Develop risk-appropriate contingency plans: Companies should ask themselves: “How do we quantify our direct and indirect risk exposure to market disruptions stemming from the escalation of the coronavirus outbreak?” Companies should map out what inputs are core to their business and also have a high-risk exposure to economic disruptions stemming from further outbreak of COVID-19 and develop subsequent contingency plans based around these high-risk inputs.

Ensure contingency plans are consistent with existing employment and health laws: In the United States, employers may consider sharing the Equal Employment Opportunity Commission’s (EEOC) Pandemic Preparedness in the Workplace amongst their employees. These guidelines specifically warn that testing an employee’s temperature may be unlawful and considered a medical examination under the Americans with Disabilities Act (ADA) unless such action is clearly advised by proper health authorities or where the employer can show the employee poses a direct threat to the health and safety of other employees.

Develop contingency plans to manage technology risk: These risks include, but are not limited to, the capacity to enable a large number of employees to work remotely, an increase in online traffic to web-powered platforms and a rise in cybersecurity threats/attacks.

Clear and consistent internal and external messaging: Communication and messaging is one of the most important considerations for organizations to consider. As evidenced by the subsequent backlash to the Chinese government’s response to the outbreak and their mixed messaging on the evolving severity of the outbreak, companies too have their personal brands and reputations on the line as they draft contingency plans.

Best Practices Checklist

04


05

VendorRisk Mitigation

Day-to-Day Best Practices

Best Practices Checklist

Implement more frequent and stricter office cleanliness requirements: Employers can provide N-95 face masks, sanitizers, increase the rate of office cleaning and publish informational reminders for washing their hands and best practices for preventing the spread of germs.

Consider shifting employee responsibilities in a defined business continuity plan: Management teams should consider the reallocation of responsibilities between employees and/or establish new procedures for remote employees in the event travel restrictions are implemented.

Develop policies for clear communication with customers: It is important to develop procedures for communication with customers and understand the overall impact on the firm’s ability to service customers. Firms should determine how customers will be notified about any restrictions to market services.

Consider implementing split team arrangements: Split team arrangements refer to when personnel and employees are split into two or more teams (e.g. Team 1 and Team 2) that are deployed with different work schedules or at different work sites to prevent the spread of the virus.

Implement flexible working arrangements: Organizations should consider allowing employees to work from home in order to prevent contamination.

Carry out testing measures in “high-risk” work environments: The EEOC’s Pandemic Preparedness in the Workplace warns that testing an employee’s temperature may be considered a medical examination under the Americans with Disabilities Act of 1990 (ADA) unless clearly advised by proper health authorities or where the employer demonstrates the employee poses a direct threat to other employees based on objective medical evidence.

Implement internal controls to prevent human-to-human transmission: Companies should consider catering lunches and meals to minimize employee’s exposure to crowded areas like the food centers, supermarkets and restaurants.

Restrict employees from returning to work if they have recently visited a high-risk area: Many employers have adopted a 14-day or longer work-from-home policy for any employee that has recently returned from China or another country with high risk of contracting the virus.

Documents

Coronavirus Risk Assessment...Major exporters, such as Canada, Brazil and the US, reside in the western hemisphere, which has experienced minimal coronavirus outbreaks. Foreign manufacturers,