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Coronavirus (Covid-19) and the
impact on global supply chains
Updated: 02.03.2020
“This outbreak, and the consequences of it, shows the importance
of having visibility and control over your supply chain and not
necessarily only your first-tier suppliers.
Listening to the experts it seems like we unfortunately will see
more of these types of horrific events that will impact our
increasingly complex and sensitive supply chains.
So if you are in the manufacturing space and haven’t
invested in supply chain visibility & risk management
capabilities, now is the time!”
Magnus Bergfors, Lead Analyst Spend Matters Europe
“The shares of American firms with strong exposure
to China have underperformed the S&P 500 index
by 5% since early January, when the news of
the outbreak first broke.”
Economist, Feb 18th “ The new coronavirus could have a
lasting impact on global supply chains”
Corona outbreak (Covid-19)
What does it mean to supply chains?
1. Status quo
2. Implications
3. Looking forward
4. Procurement insights
5. Gartner Group on Covid-19
6. Risk Intelligence matters
7. Short & mid-term actions
8. WHO recommendations
9. Further collaterals
Status quo (Covid-19)
• 89.197 confirmed cases on global level
• Cases from 67 other countries (+35 vs. Feb 24th )
• WHO risk assessment level
 China: Very High
 Rest of world: High
• Confirmed cases still on the rise
• 3% Mortality rate of Corona compared to
Mers (34%), Sars (10%) or Ebola (50%)
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• 11x more nCoV infections than Sars
Coronaviruses (Covid-19) are a large family of viruses that cause illness ranging from the common cold to
more severe diseases. Common signs of infection include respiratory symptoms, fever, cough, shortness of
breath and breathing difficulties. In more severe cases, infection can cause pneumonia, severe acute
respiratory syndrome, kidney failure and even death. Source: WHO
Status quo (Covid-19)
Current developments
• All provinces in China report infections meanwhile, the amount of new
infections in China stalls but meanwhile the rest of the world reports more
new cases than China in total
• Industrial centers of the 2nd world largest economy (China) are affected
initially, but South Korea and Italy report rapidly increasing infection count
• China central bank pumped 165BN EUR into Chinese markets on Feb 3rd &
4th to stabilize markets (2/3 of EFSF program paid out to Greece 2010-2020)
• The country’s central bank, the People’s Bank of China, cut the one-year loan
prime rate from 4.15% to 4.05%, and the five-year rate from 4.80% to 4.75%.
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• Oil consumption in Feb is forecasted to be 25% lower than 2019
(indicator for economic growth)
• Ongoing labor shortages expected due to quarantine & travel restrictions
• Credit rating agency S&P Global expects the rate of growth of the second
largest economy in the world to fall by 14% to 5 percent in 2020 (previously 5.7% projected)
• IHS Markit’s research firm projects that Corona outbreak results in a
reduction of global real GDP of 0.8% in Q1 and 0.5% in Q2.
• According Spend Matters, half of Fortune 500 companies are affected
Recent news
Morning update March 2nd
China reports lower number of new infections (1,202 in three days).
9 more countries report Covid infections while South Korea and Italy report
significant increases of cases and establish lock-down zones that already impact
economic activities (e.g. Italy: more than 5.000 supplier sites impacted by lockdowns)
South Korea´s President Moon Jae-in put the nation on the highest possible alert on
Sunday, empowering the government to lock down cities and restrict people’s
China auto sales plummeted 92 percent in the first two weeks of February compared
to the same time last year.
Hyundai resumed operations on 24th of Feb after production stoppage due to missing
shipments from China.
South Korea announces $356m in loans for industries hit by coronavirus
About 80% of the active pharmaceutical ingredients in U.S. medicines rely on Chinese
or Indian components – the main producers of antibiotic core components are within
the Chinese quarantine zones
The state-run Global Times reported that scientists had made progress on developing
an oral vaccine, with a professor at Tianjin University taking four doses with no side
effects. But experts warn that until full clinical trials have taken place it is unclear how
safe or effective the vaccines will be and it could still be months before they can be
made widely available.
First airlines (EasyJet) start canceling flights to northern Italy
Fortune reports that 94% of the Fortune 1000 are seeing coronavirus supply chain
disruptions (Link) – Microsoft reported revenue losses due to Covid-19 supply chain
issues – Nestlé cancels all business travel worldwide
American health authorities such as the CDC said Tuesday they ultimately expect the
novel coronavirus to spread in the United States - >80 suspected cases in NY reported
Investors and economists have been particularly concerned about how the continued
shutdown of factories in China could affect global supply chains, but the new
outbreaks in two major economies -- Italy and South Korea -- have rattled markets
and dashed hopes of a speedy recovery, sparking this week's worldwide stock rout.
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Stock markets reacted with heavy losses due to Covid-19 threat the week of Feb 24th
- experts expect the weakest weekly performance since financial crisis in 2018
(Dow: -12,3%)
Covid outbreak clusters in Korea report increase of infections, exceeding 4.335 on
Mar 2nd and doubling throughout the last three days (Feb 28th: 2,022),
multiple security / lockdown zones installed
Further outbreaks with rapidly growing number of infections in Italy 1,694
(Feb 28th 655) and Iran (978 with highest death toll outside China). Nigeria, Belarus,
Lithuania, Netherlands, Wales recorded their first cases.
Italian government locked down more than 50,000 people in 10 towns in the
northern Italy
Entrepreneur´s & supplier communication (Distributor in retail, 100% China supply chain footprint)
The role of China: a macro economic perspective
Volkswagen revenue distribution 2018
South Americas
North Americas
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China exports
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More details & zoom:
Macro level impacts
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Consumers may be more cautious
in their purchasing habits due to
fears about being in public and
potential exposure to the virus.
Many may turn to online sales,
challenging logistics networks.
Established hubs and supply networks
may experience limitations in capacity
and availability so that even if materials
are available, they would be stuck
elsewhere. Finding alternative routes and
means of transportation will become
Source: Gartner
Supply shortages of materials or
finished goods coming from or
routed through logistical hubs in
impacted areas.
White- and blue-collar labor may
not be available due to
quarantine guidelines or illness.
Travel may be restricted to certain areas,
limiting the ability to discover, qualify and
certify new business or programs and to
transact business.
Implications 1/3
Industrial centers of the 2nd world largest economy are affected
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Many auto plants in China have shut down because of the virus, including
factories run by Hyundai, Toyota, Tesla, Ford and Nissan. Large automotive
suppliers operate factories around the OEM sites / regions (Bosch, Lear,
Valeo, Schaeffler,…).
Hyundai, which relies on auto parts from China, said in a statement that it
had “decided to suspend its production lines from operating at its plants
in Korea. The decision is due to disruptions in the supply of parts resulting
from the coronavirus outbreak in China.”
The affected regions are heavy weights in the production of electronics,
optical parts (Hubei = “Optic valley”), semiconductors (one of the most
advanced flash memory factory is based in Hubei) and chemical
components for other industries
Retailers & Food-Chains close their stores (IKEA, McDonalds, H&M,
Implications 2/3
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Logistic impacts
Airlines reduced cargo operations to China, passenger operations almost halted
Airfreight rates skyrocket and capacity is very short
 Air China, China Eastern, China Southern still operate, Lufthansa Cargo with
limited capacity and Cathay Pacific operates through HongKong, Corean
Airlines still operates through Seoul.
 shows which airfreight operator is still working
Russia closed all boarders to China (>4000km), the new "silk road" is affected
Some railways are shut-down, rumours about Kazakstan closing borders
Freight forwarders report that even Shanghai deliveries are extremely difficult
and last mile deliveries fail (truck, car, taxi, e-scooter) as of Feb 18th
Seaport operators report slow down of operations (even Chinese Government
directed to operate as usual) as land-delivery/pick-up to seaports gets more and
more difficult. Wuhan hosts the largest inland port and it´s reported that
operation clearly slow down.
 Seaports declared container congestion as land pick-up and delivery is
difficult. Container slots with energy supply (e.g. for food-cooling) are rare
 Shipping lines do start to unload containers in other countries
Blank sailings (canceled shippings) continuously increase and partially rates drop
due to lack of delivery/demand but will skyrocket when retuning back to normal
Empty Wuhan city highway
Implications 3/3
What does the impact on factories in China for e.g. electronic parts, optical
products and chemical components mean to our industries?
• These parts are used in many industries: white ware (kitchen machines),
consumer electronics, automobile, medical devices, telco infrastructure,…
• Disruptions will become more and more visible as soon the buffers within the
tiers of the supply networks start shrinking
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• Travel and logistic restrictions will further impact supply/delivery of chemicals
from the mines in the back-country to the industrial centers (rare-earths, raw
• Buffers due to Chinese New Year and historically due to long shipment times
have been already considered but that factories won´t be able to open again
at full capacity is not on everyone´s radar
• Economist (Feb 18th) „S&P companies that have high China exposure
underperformed the index by 5% since corona outbreak was reported“
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Selected news - automotive
Out of mind from procurement experts
Procurement professionals perspective* (survey released Feb 07th)
Survey results
• 81% of the surveyed companies rely on chinese suppliers
• Every 3rd company has major chinese customers
• The vast majority of businesses is already affected:
 41% of the surveyed companies delay projects and face increased cost
 9% can´t fulfill customer demands anymore and even fear bancruptcy
 9% face supply shortages but don´t fear production downtime yet
 28% report supplier failures but are able to compensate on short-term
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• Looking forward: every fifth company is afraid of production stoppage
• Huge allocation efforts in progress (which might cause ripple-effects)
*Procurement consulting firm “Kloepfel Consulting” surveyed 243 procurement professionals on Corona in
the timeframe Feb 03-06th (published Feb 07th 2020 -
Face delays and increased cost
Can´t fulfill customer demands & fear bancruptcy
Have supply shortages but don´t fear production downtime yet
Supplier failures but are able to compensate on short-term
“The consequences of a pandemic event
are hard to predict.”
“However, the risks always exist and are
augmented with further globalization and
integration of supply chains. It is not a
matter of if it will happen but to change
the focus to be prepared when it happens.
That is a shift of mindset in risk
management and business continuity.”
Koray Köse, Senior Director Analyst, Gartner.
Looking forward
What to expect next
• Supply Chain & Procurement experts started the race for alternative supply: be
proactive or be driven by the markets (sooner or later)
• Severe delays in out- and inbound delivery through all logistic paths (air, sea,
street, rail) to all affected regions. Checkpoints delays of currently 3-7h will
effect logistic operations.
• Some manufacturing plants are reported to return to operations – but expect
many Chinese factories to come back to usual operations earliest end of
February – it will take months, probably quarters to ramp-up operations and to
catch-up the lost output
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• Airfreight & rail capacity might be required to catch-up supply shortages
• Expect impacts on supply especially within these industries (but not only):
electronics, semiconductors, pharma & medical, optoelectronics, chemicals and
Looking forward
Macro economic perspectives
• The 25% decline in Chinese Oil demand led to Brent crude prices fell by 19% (a 1-year low of less than 55 USD/barrel)
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• Chinese importers threatened to cancel up to 2/3 of seaborne imports of liquified natural gas in February as
demand collapsed and companies struggle to staff ports. Prices reacted with their lowest level on record
Japan’s economy faces a 6.3% contraction due to diminishing Chinese demand for its products.
In Singapore, the government warned that the country’s economy could contract by as much as 0.5% and thereby potentially
enter into a recession due to the coronavirus.
Chinese officials believe that the virus could reduce the country’s growth by 1 percentage point and thereby adding further
pressure on its already decelerating economy.
Credit rating agency S&P Global expects the rate of growth of the second largest economy in the world to fall by 14% to 5
percent in 2020 (previously 5.7% projected)
IHS Markit’s research firm projects that Corona outbreak results in a reduction of global real GDP of 0.8% in Q1 and 0.5% in Q2.
Goldman Sachs expects first-quarter gross domestic product growth in the United States to slump to 1.2 percent on an
annualized basis before rebounding to 2.7 percent in Q2
Gartner Group on Covid-19
This is where riskmethods can help in
24h – this shouldn´t take a month
using plug&play technology
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This is where riskmethods can help a)
keeping the right priorities and b)
orchestrating alignment between all
mitigation players
Beeing ahead of risks requires a risk
aware organization and ongoing risk
monitoring incl. impact assessments.
Proactive behaviour drives the
opportunity to make your enterprise
resilient. Technology can be one of
many important enablers.
riskmethods 2020 © All Rights reserved.
Gartner Group recommendations on Covid-19
Short-term actions: Do it now
Midterm actions: Do it this quarter
Long-term actions: Do it this year
Develop a high risk for supply chain
disruption monitoring and response
programs for countries impacted by the
virus and potential supply chain
exposure from tier 1 and below. If lower
tier transparency is missing, start
building up the program and prioritize
discovery to get a full picture rapidly. It’s
also important to assess how customer
spending might be affected.
In the midterm, the focus should be on
balancing supply and demand as well as
building buffer stock. Assess
opportunities to diversify the supplier
ecosystem and review or create the
organization’s overall risk management
approach. Work with internal
stakeholders and strategic and critical
suppliers to establish a congruent risk
management approach to monitor and
prepare for potential material and
manufacturing capacity shortages.
Once the initial impacts of the crisis are
mitigated, it’s all about foreseeing the
next “when.” Supply chain leaders and
their teams can, for example, conduct a
scenario planning exercise and develop
action plans. This is the time to discover
or develop alternative sources and
diversify value chains.
Make sure all inventory is within reach
and outside impacted areas and
logistical hubs. Additionally, supply chain
leaders should work with their legal and
HR departments to understand any
financial implications of not being able
to deliver supply to customers and
provide guidance to employees located
in the impacted areas.
Learn more: Sourcing Strategy for Procurement Leaders
Learn more: Outside-In: A New Mindset for Supply Chain Planning
Tackle strategic and concentrated
supplies with high value at risk where
internal risk capacities to absorb, such as
alternative sources, routes, inventory and
cash reserves, aren’t sufficient enough to
mitigate any major disruption. Being
better prepared than the competition
might even open new opportunities
when the next disruption comes
Source: Gartner
Short term actions 1/2
Identify affected supply chain players (suppliers, hubs,
warehouses, factories,…)
Assess the potential impact to navigate your rare
ressources on the most impactful areas
Covid and supply chain implications website:
Video: how enterprises can react faster and plan business continuity
Start to mitigate
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• Search/identify alternative sources, check if affected
players have non-affected back-up sites, stock level
adjustments, product re-design if possible, demand
forecast vs. stock level/goods-in-transit
• Book air/sea/road/rail freight capacities early and
consider increasing freight rates, especially when
manufacturing process ramps-up again
Post-crisis: plan for long-term business continuity,
evaluate insurance options
Consider health as a key aspect to inform all potentially
affected stakeholders (see WHO recommendations for health prevention)
Short & long-term actions 2/2
Crisis response
Think about…
• Single source material
• Business at risk
Food for thought
• Flexibility & availability of
 Single source material
 Business at risk
• Flexibility in production capacity
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 Flexibility & availability of alternatives
• Alternative manufacturing sites
Long-term plan for business continuity
Think about…
• Could a CBI (Contingency Business
Interruption insurance) cover risk
that can´t be mitigated?
• Change contract terms with supplier
to have priority for backup-capacity
• Evaluate Out- vs. Insourcing
 Flexibility in production capacity
• Evaluate cost vs risk/business at risk
of alternative sources
 ….
• Utilize spare production capacity
elsewhere on site
• Initial risk assessment checklists
 Alternative
manufacturing sites
Characteristics of competitive
& prepared companies
react faster
are risk aware
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Digitized supply chain
Broad coverage
N-tier visibility
Aligned to business
Continuous monitoring
Streamlined mitigation
are proactive
Understand business
Mandate preventive
Incorporate risk into
business processes
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The riskmethods Solution
be risk aware
react faster
be proactive
Transparency is the key to react fast & reduce impact
(1) What
1. Understanding of the root causes enables to derive
the appropriate potential crisis-reaction options
2. Understanding the affected supply chain players (e.g.
suppliers) allows the immediate & correct focus
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(5) Which
(4) Which
Disruption /
(2) Which
are down?
3. Knowing which parts are not longer available enables
procurement professionals to understand alternative
options and checking inventory levels
4. Clarity on affected (own) products provides
transparency about potential impact on revenues and
margins to evaluate potential impact to the business
(3) Which
5. In case of non- or late-delivery to customers to be
expected the understanding of which customers
might be affected is key. Decisions driven by business
at risk insights help to prioritize customer delivery for
remaining capacities.
Transparency is the key to react fast & reduce impact
(1) What
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(5) Which
(4) Which
Disruption /
1. Risk Radar supports to understand the root causes
24/7 with fastest pace to derive the appropriate
potential crisis-reaction options
(2) Which
are down?
(3) Which
2. Risk Radar supports the immediate understanding of
the affected supply chain players (e.g. suppliers) to
allow the immediate & correct focus
3. Impact Analyzer enables companies to know which
parts are not longer available, their lead times etc. to
enable procurement professionals to understand
alternative options
4. Impact Analyzer provides clarity on affected (own)
products provides transparency about potential
impact on revenues and margins to evaluate potential
impact to the business
5. Action Planner helps to orchestrate the appropriate
customer communication and well orchestrated
mitigation activities to minimize impact or even be
proactive to avoid crisis to happen.
The riskmethods Solution
Be risk aware
React faster
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Be proactive
The value of The riskmethods Solution
By leveraging Artificial Intelligence,
The riskmethods Solution identifies the
real threats to a supply network
The riskmethods Solution allows
businesses to identify and illustrate the
impact on supply chain disruptions
The riskmethods Solution allows
businesses to proactively plan for
business continuity and avoid risk to
hit the supply chain.
riskmethods Risk IntelligenceTM
Covering all types of risk
Financal • Reputational • Natural Disaster
Man Made • Geo-politcial • Cyber
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Millions of web
pages & databases
AI masters big
data search
Quality check &
data enrichment
Alerts &
Scorecard update
risk scoring
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Automated geo-mapping and
data vizualization, supported
Negative pattern by machine-learned logics
detection across
big data sets
AI-based noise
Big data
Mobile and smart device
supported apps (apple watch,
apple TV, mobile apps)
riskmethods Risk Intelligence
World leading Risk Intelligence
• Covers global media publications 24/7 and
many expert risk databases
• Multi-language media monitoring covering 90%+
of all supply chain relevant languages
• 100% automated risk intelligence feeds & ongoing updates
• World leading noise cancelation to provide relevant insights
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• Unique Risk Intelligence is powered with applied and
awarded AI/machine learning algorythms
• AI powered by experienced risk analysts that continously
train the AI (~20M+ supervised training sets by now
gurantee the leading risk intelligence)
January 30th 2020, 6:09pm CET: (Update)
Hon Hai Precision halts production in China due to coronavirus
January31st 2020, 3:43am CET:
Coronavirus outbreak leads to accelerated withdrawal of South Korean companies from China
February 2nd 2020, 3:29am CET:
Mazda, Panasonic and Hitachi to halt operations in China
February 2nd 2020, 8:01am CET:
(Update) Wenzhou have been lockdown as well due to coronavirus outbreak, China
February 4th 2020, 4:30am CET:
AT&S with slump in earnings after nine months, outlook reduced due to corona virus
Risk identification is beyond human scale
Risk Intelligence on Covid-19
• So far, our customers were alerted on more than 47k affected suppliers
• Largest impact of one alert: 24k supplier sites affected (Factories affected at Shanghai, Zhejiang, Jiangsu, Guangdongand Chongqing)
• 86% of entire manufactoring industry affected
• Highest impact for a single enterprise detected so far: 86 suppliers affected
• Italian Covid-outbreak already affects more than 3k supplier sites
Alert distribution by topics
Alert distribution by risk object
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Image & Compliance
Specific supplier
Video: how enterprises can react faster and plan
business continuity
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Click here to launch video
SCRM unleashes broad values
Better management of events through risk management
governance and mitigations plans
Airfreight crisis cost reduced by
$35M in 1 year
Productivity increase through dedicated teams, processes
and tools to manage risks
Protect the
Early risk warning means a reduction of
reaction time >
Better management of commodity price swings
Cost Avoidance
Prevention of price increases of
Increased Sourcing performance through better
understanding of Supplier Risks
Supply Chain Risk
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Faster Sourcing decisions/award through visibility on
Supplier key risks
Top-Line protection
Avoidance/reduction of crisis costs through reaction time
up to 16 %
Reduction of safety stock worth
$26M /year
Reduction of insurance premium through Supply Chain
Prevention of revenue
Reduction of lead-time for disruption event turnaround
Shareholder value
Avoidance of missed sales through visibility on alternative
supply sources / fallback plans
Prevention of loss of goodwill / shareholder value through
reputational damage
shortfall of
Avoid 2,5%
share price loss/underperformance
(vs. peer group in a 2Y-period)
2019-nCoV – WHO recommendations
To date, there is no specific medicine recommended to prevent or treat the novel coronavirus. However,
those infected with 2019-nCoV should receive appropriate care to relieve and treat symptoms, and those
with severe illness should receive optimized supportive care. Some specific treatments are under
investigation and will be tested through clinical trials. WHO is helping to coordinate efforts to develop
medicines to treat Covid-19 with a range of partners.
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The basic principles to reduce the general risk of transmission of acute respiratory infections include the
Avoiding close contact with people suffering from acute respiratory infections.
Frequent hand-washing, especially after direct contact with ill people or their environment.
Avoiding unprotected contact with farm or wild animals.
People with symptoms of acute respiratory infection should practice cough etiquette (maintain
distance, cover coughs and sneezes with disposable tissues or clothing, and wash hands).
WHO does not recommend any specific health measures for travelers. In case of symptoms suggestive of
respiratory illness either during or after travel, travelers are encouraged to seek medical attention and
share their travel history with their healthcare provider.
Interesting reads on Covid-19 and Supply Chain
Covid-19 and supply chain implications website
Zurich Insurance, Feb 27th “Organisational Resilience: Guidance on Pandemic Planning”
Logistik Heute, Feb 20th “Den Risikofaktor Coronavirus beherrschen”
Handelsblatt, Feb 19th “Das Coronavirus bremst die Chipindustrie”
Economist, Feb 18th “ The new coronavirus could have a lasting impact on global supply chains”
BBC News, Feb 18th “Coronavirus: Jaguar Land Rover 'shipping parts in suitcases”
IndustryWeek, Feb 14th “Coronavirus & Automotive: Components Troubles Have Just Begun”
TheWallStreetJournal, Feb 14th “Coronavirus & Automotive: Components Troubles Have Just Begun”
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New Decade, New Problems:
Procurement Considerations for 2020
Thank you!
Heiko Schwarz
Co-Founder & Managing Director
[email protected]