Coronavirus’ Impact on Supply Chain in Mexico

By Mohamad Moussa, Senior Director of Supply Chain at Flex, Ltd.

Supply chain management in Mexico is increasingly complex as the country gains a bigger footprint on the global stage and the origins of its needed production supply are more international. Mexico has become a major hub for the electronics and automotive sectors and it’s a major player in the global manufacturing industry. The market knowledge gained, and the supply chain channels and disciplines put in place in the last 20 years have ensured a resilient industry capable of addressing major supply interruptions.

However, the manufacturing industry and the globalization model in general has endured a tough year in 2019, from the trade wars between the US, Europe and China, the uncertainty related to the NAFTA renegotiations and the threat of closing the border between the US and Mexico. These events threatened to cascade disruptive elements into a globally connected model, impacting the Mexican flow of goods. The sense of unease was prevalent throughout the year and immediate impacts were strongly felt in capex retractions and a tight component supply.

Despite all these challenges, the Mexican manufacturing industry was able to navigate the obstacles and come out unscathed.

Looking ahead, 2020 was promising to be a less volatile year since the concerning issues were addressed (USMCA was signed, and partial trade agreements were reached) and more supply chain predictability & stability was achieved.

That was all true until the coronavirus outbreak around Chinese New Year vanquished that hope.

The Coronavirus started in the Wuhan region of China and spread rapidly throughout China and around the globe. The World Health Organization swiftly declared a global health emergency, and all governments started to take actions to stem the spread of the epidemic. The Chinese government quarantined the affected region and extended the Chinese New Year holiday. Governments and business entities restricted travel from and to the China region to protect the general public and factory employees from the risk on contracting the virus.

As the immediate focus continues to be correctly on controlling the epidemic and protecting the general populations, companies are reviewing the potential impacts and studying ways of minimizing them.

The pandemic threat is not new and there was a precedent with the SARS epidemic in 2003. However, given the more dominant role that China plays in 2020, the fear of more disruptive impact is totally justified. The economic fallout can be bigger given the dependency on Chinese supply that supports the global manufacturing industry.  Mexican Electronics Manufacturing is especially vulnerable in the automotive and semiconductors segments to any interruptions in China.

It s too early to tell the extent of the disruption since the situation is still fluid and full of uncertainties. If the situation drags for a long period of time, there certainly will be drastic supply chain realignments to resolve the constraints. However, short term focus for Mexican companies additional to ensuring the safety of their personal is to minimize immediate impact:

Enhanced communication

Communication is always important, but it plays a more critical & urgent role during a crisis to align on the many actions needed to bypass the challenges. Frequent three ways discussions between the factory, the supplier and the customer are needed and should cover latest updates about the epidemic (Governmental and business related). Priorities should be clearly defined when things are back to normal to ensure quick reaction for things that matters the most.

It’s all about logistics

Since the first measure in this crisis was to contain the spread by stopping production and extending employees’ holiday, backlogs at ports and points of entry will be at their highest level. Warehouse capacities at these ports will also be impacted. Once the situation starts to stabilize, there will be a rush to ship the needed products as quickly as possible. A multi-modal transportation strategy will be required. This strategy will require a diversification of the modes of transportation inside China to ensure deliveries to the ports of entry, and outside China to the product’s final destination. Also, a multiple routes strategy should be implemented where the flow of supply can be diverted to other regional hubs that are not impeded equally in the crisis.

 

Alternate sourcing

Engineering and supply chain teams will have to examine their production requirements & optimize on their second source strategy (most companies have it in place even though it might not cover all the required items). Develop alternative plan for the single source items either by approving another source or changing the manufacturing facility which might not be feasible short term.

These actions will help short term in reacting faster if the epidemic is controlled quickly. However, the longer it takes for China and the world to stem the spread of the virus , the more drastic the actions will be. Always hope for the best, but plan for the worst.

Mohamad Moussa is a Senior Director of Supply Chain at Flex, Ltd. responsible for managing global supply chain solutions for multiple customers in the Energy segment. He resides and works in Mexico, supporting global supply chain activities for the last 22 years.