Businesses Due to Recover 6 Months After Pandemic Ends
A CFO survey shows that it will take 6 months for businesses to return to normal after the pandemic.
The biggest challenge the world is facing now is how to stop the spread of coronavirus. But even as many nations try to bring the public health crisis and supply chain disruption under control, many large companies expect that business will take between 3-6 months to return to normal.
That’s according to the CNBC Global CFO survey, in which 40% of companies said they expected business to take 3-6 months, and 25% said they expected businesses to take at least six months
Other CFOs taking the survey said it was too early to know whether there would be supply chain disruptions.
The CNBC Global CFO is one of the largest public and private companies globally, collectively managing more than $5 trillion market value across different sectors.
40 out of the 137 council members responded to the survey conducted between March 4 to March 16.
According to Yossi Sheffi, if companies want the economy and supply chain to recover, then they must join the “war” – effort to beat the virus first.
Yossi Sheffi is a professor at the Massachusetts Institute of Technology (MIT). He is also a director of the MIT Center for Transportation and Logistics.
The move to fight coronavirus started rapidly over the weekend. Auto manufacturers such as G.M. and Tesia started producing ventilators in short supply at the hospitals.
Apple and Facebook began to donate protective masks.
On Saturday, HanesBrands announced that it would convert from producing apparel to cotton masks. The Fed Drug Administration approved cotton masks for use when the N-95 masks are unavailable.
The U.S. federal government has contracted HanesBrands to manufacture masks. The company will retrofit some of its factories and may ramp up production to 1.5 million masks weekly. Overall, we expect the consortium to ramp up production from 5M to 6M masks weekly using the Hanesbrands’ design and patterns.
China is ramping up their production again, and soon you’ll see ocean carriers putting the volume of ocean freight capacity back to normal.
But the question is, do they have the domestic network ready to absorb the surge in inbound movement? Is it able to get products back to all distribution centers, all stores, and everywhere products need to go?
It would cause inefficiency and complexities in the supply chain. Therefore, Chinese transportation and manufacturing will have to ramp up. But even though it does, consumer spending will remain below healthy levels – bringing supply chain at odds.
California imported goods from China worth $129 billion, according to the U.S. Census Bureau. California’s jobless claims are spiking already and may hit 525,000 by the end of the month.
If China loses California – it even temporarily directly affects China’s exports. We might argue that China is ready to bring the supply chain back to normal, but without consumers, the supply chain is far from normal.
According to Tom Derry, the CEO of the Institute for Supply Chain Management, companies relying on the Chinese supply chain had adequate short term stock ahead of the U.S. tariffs and Chinese New Year.
But, replenishing inventory is now the biggest issue, and it’s not clear when China will return to normal.
Chinese workforce relies heavily on mobile workers, and restrictions are still in place. Chinese companies can’t get back to full production.
It means we can only begin to see a recovery in the second half of the year, but that’s if things don’t get worse in Europe.
Boeing and the automakers: the biggest supply chains in the world
The biggest supply chains in the world are at risk of the collapse of air travel and auto manufacturing shutdowns.
Most suppliers will not survive beyond two weeks. Most auto sector suppliers don’t have much cash on hand – making it tougher for smaller suppliers.
Smaller firms low on inventory also lack the information they need to make their products. Others are pulling resources to establish temporary economies of scale.
Companies with advanced supply chain technology may have some normality within two to three months. But they’ll been hurting and it might take them six to nine months to get through it and get back up and running effectively.
The government may have to bail out Boeing to protect it from competitors and the large global supply chain.
According to Sheffi, if Boeing goes down, Airbus, Bombardier, and all suppliers also go down. It will have a huge economic hit to all countries and will take time to recover.
Given the economic impact of the current health crisis and the toll it has taken on airlines, Boeing will reduce orders at a time when airlines are canceling orders.
As the supply also goes down, it won’t take long before it reaches fourth and fifth level providers – those are family-run suppliers and other smaller suppliers making specialized parts.
Even though the majority may survive, they’ll start by going down, Sheffi said.
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