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CRISIS-PROOF SUPPLY CHAINSHOW SUPPLY CHAINS ARE ADAPTING IN THE WAKE OF COVID-19

WEBINAR, JUNE 22ND, 2020

UWE HAIZMANN

EAC INTERNATIONAL CONSULTING

▪ On 23rd Jan. lockdown of Wuhan

▪ COVID-19 outbreak domestically

Overseas shipment before CNY

December

China Covid-19 breakout

Restart work

from 3rd week

of February

CNY Covid-19 break-out in Europe

China recovery

Europe partial production

restart

▪ State Council facilitates restart of

production

▪ Large sized industrial company resumption

rate in 7 provinces reaches >70%

▪ Announcement of corrective policy (e.g.

tax) for industrial enterprise

▪ Large sized enterprise employee returnee

rate achieved 98.6%

▪ Domestic companies expand production

capacity (e.g. medical goods)

▪ Total export of 18.5 trl. EUR, 1.4%

growth vs. 2019

▪ Export of mechanical machinery

(-4%) and textile related (-20%)

decreased in first 5 months

compared to 2019

COVID-19 breakout strongly impacted China industrial

production and economy – mainly during first quarter of 2020

January February March April May

▪ 2020 April industrial revenue increased

5.1% compared to 2019, sales orders of

key industries steadily increases

MACHINERY& EQUIPMENT

Developing towards high-end

& intelligent manufacturing

COMPUTER & MOBILE PHONE SEMICONDUCTOR

27% of global exports

China’s manufacturing facilities are central to global supply

chains which depend on Chinese-made goods & components

MACHINERY& EQUIPMENT COMPUTER & MOBILE PHONE

90% of global production

China as world’s largest

exporter, producer & consumer

China’s manufacturing facilities are central to global supply

chains which depend on Chinese-made goods & components

SEMICONDUCTOR

SEMICONDUCTOR

42% of global new plants

China national strategic

development industry

China’s manufacturing facilities are central to global supply

chains which depend on Chinese-made goods & components

MACHINERY& EQUIPMENT COMPUTER & MOBILE PHONE

Demand Uncertainty

Weakening and strengthening

the demand for some industries

Logistic Bottlenecks

Impacting the ability to ship and

receive products on time

Workforce Restrictions

Delayed return of workforces, lack of

personnel mobility, and traffic

restrictions

E2E Supply Chain reliance

Dependency on other countries for raw

material/components

Low Supply Chain Transparency

Limited flexibility to identify alternative

suppliers with short notice

COVID-19 measures in China disrupted global supply chains on

different levels, from raw material shortages to demand fluctuations

European Drug Shortage

▪ Some 90% of active ingredients used

in generics are produced in China

▪ Supply chains for drugs are

vulnerable in Germany and Europe

Toyota

▪ Toyota Japan 16 plants affected

by supply chain disruption

during outbreak

▪ >100 automotive parts supplier

in China

Porsche

▪ Porsche closed its production in Germany at

the end of March

▪ Bottlenecks in global supply chains did not

permit regular production

German mechanical engineering companies

▪ EBM-papst: forced to use air freight at increased costs

▪ Bosch China: set up emergency team to re-source products

The effects forced globalized companies to shut down

factories and re-source products even outside of China

Main phase

COVID-19

impact China

Nov Dec Jan Feb Mar Apr

-30%

May

-20%

-10%

0%

10%

Production Manager Index Industrial Output Exports

Factory shut-downs in

February weakened

global supply chains

Reopening was led by

state-owned enterprises,

with >90% open at the

beginning of March

Since then, supply chains

in China have quickly

recovered, enabling

recovery of manufacturing

across the globe

April and May development already indicate significant

recovery in areas such as PMI, industrial production & exports

Pull Factors:Push Factors:

Business

Rising wages & ageing population

reducing cheap workforce in China

Suppliers shifting production

Lower wages and larger workforce,

e.g. in South East Asia

Access to large consumer markets

Risk

Exposure to trade conflicts

Stronger regulations in China (e.g.

environmental)

Free trade agreements (e.g. Vietnam)

Diversification of manufacturing

locations to reduce exposure

Political

Governments reducing access to

critical manufacturing sectors (e.g.

healthcare) for foreign companies

Governments encouraging local

companies to produce critical

components locally

Despite fast recovery, the crisis highlighted dependency

problems and accelerated ongoing shift of global supply chains

Pull Factors:Push Factors:

Business

Risk

Political

Despite fast recovery, the crisis highlighted dependency

problems and accelerated ongoing shift of global supply chains

What are strategies to optimize sourcing and

manufacturing locations in a complex global

network with constantly changing influences?

Companies can react to increasing complexity in international supply

chains by improving transparency & agility for existing networks …

1. Increased transparency & agility for existing networks

Digital supply chain transparency

Leverage big data and digital tools to create end-to-end transparency

on available resources and demand dynamics

Definition of micro supply chains

Flexible contracts with multiple suppliers close to demand locations

as a fall back option for established suppliers

Global scenario planning

Identify high-potential scenarios with the help of big data (e.g. for

pandemic development) and design response options in advance

Flexible production planning

Employ agile production assets & planning tools to be able to quickly

reprioritize and shift production capacity in case of supply shortage

Flexible

Supply

Chains

Nearshoring

Transferring manufacturing back to countries closer to targeted

consumer markets, e.g. in Eastern Europe

Complete Relocation

Leaving China behind to build up manufacturing in other countries

that are better suited for requirements

China plus 1

Diversifying operations by adding another location in Asia, but

keeping Chinese operations

Location

optimization

modes

2. Reorganization of manufacturing & sourcing locations

… and by building up additional or new production and

sourcing capabilities in diversified countries and regions

Environmental

Risks, e.g.

- emission

standards

- process

restrictions

Dependency

Risks, e.g.

- agility of

sourcing

- availability of

alternatives

High RiskLow Risk

Supply Chain

Risk Radar

Geopolitical

Risks, e.g.

- trade wars &

tariffs

- supply

interruptions

Operational

Risks, e.g.

- HR cost &

availability

- local supplier

access

Assessing a company’s

exposure to supply

chain risks as foundation

for deciding whether China

remains a good fit

Based on highest risks,

company can decide

which other locations

offer opportunities to

reduce specific risks

Often, nearby locations

can be more suitable than

shifting abroad

Supply chain risk analysis offers insights in company-

specific risk exposure to identify needs for alternative sources

MARKET INTELLIGENCEINTERNAL TRANSPARENCY

FOOTPRINT INTELLIGENCE TOOL

Production Footprint Intelligence - Dashboard

Size overview Asset ownership Size: 120,000 sqm

Building age: 12 years

Owernship: Rental

Contract partner: Government

Lease Price: -

Rental p.a. 0.2 mio EUR

Shanghai

Jiading

Business Envrionment

Cost level

China

BU - 1

Manufacturing

R&D

Warehouse

Location Name (EN) District Basket Size Chinese Name

M2 Jing'an District 1,674 n.a.

Soho Bar Jing'an District 1,401 苏荷酒吧(汉中路店)

Linx Club Huangpu District 1,372 n.a.

TAXX Huangpu District 1,310 n.a.

Kee Club (Huaihai Middle Road)Xuhui District 1,006 (淮海中路店)

Phebe Bar (Hengshan) Xuhui District 1,005 菲芘酒吧(衡山路店)

SOS Club (Huaihai Road) Huangpu District 808 SOS酒吧 （淮海中路）

Fusion Huangpu District 867 n.a.

Muse2 (Huangpu District Flagship Store)Huangpu District 633 Muse2 M2酒吧(黄浦区旗舰店)

Club S2 (People‘s square) Huangpu District 584 缪斯CLUB S2酒吧(人民广场店)

CLUB HI BOOM Yangpu District 529 n.a.

HI BABY CLUB Minhang District 520 n.a.

No.1 Bund Huangpu District 406 外滩源壹号

Fengwang Club Jing'an District 395 蜂王酒吧(大宁中心广场店)

The Fellas Huangpu District 374 n.a.

CLUB PARTY SPACE (Jing'an)Jing'an District 361 n.a.

Dianshang Wine Bar Changning District 325 典尚红酒吧

CLUB FAX(Jingan) Jing'an District 311 n.a.

Candor Huangpu District 305 n.a.

XTD Elevated Huangpu District 295 新天地朗庭酒店

Club Room Huangpu District 278 艾迪逊空间

WooBar Hongkou District 269 w酒店w层

Havana Bar Pudong District 268 n.a.

LONG Bar Huangpu District 268 廊吧

The Odd Couple Huangpu District 264 n.a.

Footprint tool is a smart

combination of external

and internal data

Full transparency on

internal assets & facility

footprint (i.e. production/

warehouse facilities/ R&D)

Macroeconomic, business

environment and cost data

to enable strategic

portfolio management

Footprint intelligence tool enables big data-based decisions on

production locations and optimized use of available resources

UWE HAIZMANN

Partner

Shanghai Office

Uwe.Haizmann@eac-consulting.de

T: +86-21-6350 8150*227

M: +86-139 165 92803

200050 Shanghai / P.R. of China

Contact Information

For over 20 years, Mr. Uwe Haizmann has been working and living in Shanghai. He joined EAC in 2008 and is the

global head and Partner in charge of EAC’s Operational Excellence practice.

Mr. Haizmann’s team in Shanghai focuses on operational excellence projects for European-based industrial and

consumer goods companies in Asia. He is fluent in German, English as well as Mandarin and holds an MBA

degree from the China Europe International Business School (CEIBS).

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