We spoke to a current Supply Chain Manager at GM China to discuss the challenges sourcing and distributing parts across the region. China seemed to have contained coronavirus and consumers are resuming somewhat normal life.
During the full interview we explore:
- Outlook on the potential recovery and current situation in China to contain COVID-19
- Impact of the disruption on the automotive supply chain
- How the industry could protect against future pandemics but increase the level of safety stock of parts
- Procurement solutions for Chinese OEM's who originally source parts from Wuhan
What is your view on the medium-long term impact of COVID on the Chinese auto market?
Actually, I think the current situation will, gradually, come back to normal. Why I say this is because, especially in February, most of the people are not able to go outside. Which means that they have to stay at home. As they are not able to go anywhere, such as dealerships, that's why the volume is quite low, compared to the previous year or compared to the previous months, such as January.
But now, we have seen a strong control on the spreading of the virus and now most of the cities and provinces, they have almost zero increase daily. That's why I say it will gradually return to normal. But in the meantime, I couldn't say that there will be a structural change in the consumption. For example, I couldn't say, that because of this virus, people want to buy a new car. Especially for many of the smaller and medium enterprises, due to the coronavirus, their performance and their operation was greatly affected. This means that their daily and monthly income of the workers or management, they certainly have not had an increase, but may have had a decrease in their income. That's why there is not such a high demand for buying of cars, because of lowering income.
They are just returning back to normal. Some families, before the Chinese New Year, they were preparing to buy a new car. But due to the virus, they postponed their plan, to March and maybe to April.
Could you just explain the environment in China? You mentioned that people are willing to go back outside, willing to act more normally. What is the situation if you want to go into a shopping mall? Do you have to be tested? What's the situation like, to that extent?
Actually, whenever the Chinese people go to public places, such as going to parks or go to the train station or the shopping mall or some other public place, there is always temperature testing, especially their body temperature. Whenever they discover that their body temperature is higher than normal, they are not allowed to go into the public place, such as to go on a train or take a plane or go to the shopping mall or go to the dealership. This is a counter-control. The people, actually, will take their body temperature at home. They will put some kind of software in their smartphone, to tell the administration of public health. This is also some kind of control and anti-virus controls.
The government distributed all these tests to both families and also public places, to contain the virus?
Yes, you are right. We test our body temperature twice or three times a day and we will also make a record, each day, and we will submit this record to the public health office.
Could you just explain the major points of disruption you are seeing in the automotive supply chain, due to coronavirus?
Firstly, the situation for the raw material, the components that we need delivery of, for the mass production, they are not able to supply these on time, due to transportation. Locally, we have a closed railway and highway. For the raw materials and the components, they are not able to ship to different areas in China. So there are supply shortages of the raw materials or finished goods, in the impacted areas, especially in the Wuhan area.
Secondly, because most of the people, especially in February, they were constrained, inside their homes. They were unable to go to their work. There is no white collar or blue-collar workers, which are able to go out. Also, from the purchasing side and the sourcing side, because we are restricted on travel, so we are unable to go to certain areas, such as in the epidemic center in Wuhan, because Wuhan is responsible for one quarter of Chinese automotive production. So local suppliers and global suppliers, they were focused on that area. For sourcing, we are unable to go to this area, so we are not able to start new projects or new programs and to be able to undertake transactions.
Also, there is an issue regarding logistics, because the established hubs and supplier networks, they are currently experiencing limitations in their capacity and the availability. So even if materials are available, they would not be able to be shipped to their destination and they are stuck somewhere else. Also, finding the authority for goods to be transported is very difficult, because of the lockdown of the cities and provinces.
The other issue is regarding the consumers. The consumers are also restricted to certain areas and they are unable to go out normally, as I said, such as going to the dealership in order to limit exposure to the virus. Many have moved to online sales, which is also challenging. So these are all effects of the virus, in China.
Can we focus on sourcing and the big issues that you are having on sourcing and shipping them to the correct location. How are you managing that challenge today, with Tier 1 and Tier 2 suppliers?
Actually, regarding the sourcing sector, I think currently, we are trying many different types of methods, especially, trying to find some alternative suppliers, in some other regions in China, in the southern or north eastern part of China. China is a very big market which means, even for the same assembly or the same product, there two or three different suppliers. So we are trying to find an alternative supplier. We will even try to import from other regions, such as from Europe or from the United States. But, as you know, in the US, there are their own kind of issues. It's just trying to find other solutions.
On the other hand, because, as you know, before every Spring Festival in China, we create extra stock, which means that stocks will last us through the spring break. Normally, it's around one or two months' supply; it depends on different products and programs. For this kind of stocks, this can also last a certain period, before we find the new solutions. Nowadays, some suppliers have already come back to normal, which means they are returning to their normal production. So this is also a solution.
But before they return to normal, we can use our stocks, to support our production line. These are the kind of solutions that we are undertaking, when we are facing these types of issues.