While it is still difficult to predict which businesses or industries will be disrupted by the COVID-19 outbreak and the extent of its impact, we can identify the industries most at risk by examining various supply chain factors. Based on our experience, companies with low inventory levels—particularly small businesses—face the highest risk.
Our analysis shows that the highest-risk industries include tools and hardware, electronics, electrical appliances, automotive component manufacturers, construction materials, chemicals, and specialized industrial products. Although telecommunications companies, the automotive industry, computer peripherals, and certain industrial sectors may also have lower inventory levels within their supply chains, these companies typically adjust production volumes and resources to mitigate supply chain risk.
Lessons can also be drawn from past disruptions. A notable example is the Fukushima nuclear disaster in Japan in 2011. Some companies discovered that a single point of failure in their supply chain could halt production. For instance, Apple devices using lithium-ion batteries relied on polymers sourced from a factory near Fukushima. Another example involved an automaker that was unable to obtain the oxygen sensors required for truck engines.
Since then, many companies have learned from these mistakes and focused on assessing and managing potential risks, including eliminating single points of failure. Some companies have gone further by collaborating not only with their first-tier suppliers but also by developing visibility into second- and third-tier suppliers. Companies must communicate the importance of this visibility to their suppliers, as many organizations are unaware of hidden risks. Fortunately, over the past few years, supply chain visibility tools have improved rapidly, making it easier to address these challenges.
Another issue is production capacity. Even if a company has multiple suppliers, second-tier suppliers may not be able to meet demand fully. Travel bans and city lockdowns—for example, the extended Chinese New Year holiday in China—led to supply shortages and urgent delivery demands.
The best companies can do is understand the risks in their supply chains and develop strategies to mitigate potential disruptions in advance. Increasing inventory levels can also be highly beneficial in facing crises.
Currently, if your company or key suppliers have limited inventory and rely heavily on sourcing from Asia, you are at high risk of disruption. Companies in this situation are evaluating inventory levels, component production capacities, and developing contingency plans. For other businesses, it is essential to identify specific supply risks, actively manage them, and find solutions to minimize potential impacts.
