Coronavirus not impacting parts supply – yet

AUSTRALIA’S automotive parts industry has acted quickly to mitigate and avoid supply chain disruptions resulting from the coronavirus outbreak, with stockpiles of inventory providing breathing space while the full impacts become clearer and alternative sources are secured.

The consensus among businesses surveyed by GoAuto was that timing had been on their side due to the outbreak being confirmed after a routine build-up of inventories in preparation for the Christmas and Lunar New Year breaks.

Most agreed that the situation could deteriorate if obstructed transport and other impacts of the outbreak drag on toward the second quarter of this year, with investigations and arrangements already in the works to shore up supply channels and shipping routes that would help insulate them from worst-case scenarios.

Some factories in China resumed production last week after numerous provinces and local authorities ordered businesses to remain closed for the week ending February 9, following a central government decision to extend the Spring Festival public holiday by three days.

However, many production and distribution facilities remain closed or are running at reduced capacity due to workers being confined by travel restrictions or remaining housebound for 14-day quarantine periods.

Australia’s automotive manufacturing sector is far from immune to overseas supply chain disruptions as some components are inevitably imported, with Melbourne-based seatbelt and harness specialist Australian Performance Vehicles (APV) among those affected.

APV managing director Harry Hickling told GoAuto the company had built up around four months of inventory in the lead-up to Christmas and Lunar New Year.

In response to the coronavirus outbreak, APV quickly identified four suppliers with direct or indirect exposure to disruption out of China, so had taken a belt-and-braces approach by dual-sourcing components from different continents then locking in 12-month supply agreements that Mr Hickling said was done “to get it off our radar and not have to worry about it”.

He said there was a cost impact to this decision and praised his China-based suppliers for being “very proactive and honest in their communication”. But he expected the situation in China to remain unpredictable for some time and for the resumption of supply to be initially slow and sporadic.

Shedding light on the manufacturing situation in China was Mark Mitchell, director of global marketing and technical support for air-conditioning compressor manufacturer Unicla International, which is headquartered in Hong Kong with a production facility in mainland China and an R&D centre near Brisbane.

Mr Mitchell said factories in China were beginning to reopen subject to local government provisions, which in Unicla’s case had been “an induction on cleanliness, sterilisation, wearing the mask properly and so forth” for all staff before production resumed the next day.

He said Unicla was fortunate in that it held a stockpile of raw materials, was located in one of the first local government areas allowed to resume business and employed a factory manager who had received timely advice from health authorities in order to “do a lot of preparatory work for the staff before they arrived back”.

None of Mr Mitchell’s colleagues had been infected by the coronavirus, although he said four production line workers had been stranded by travel bans and two office staff were working from home in order to observe 14-day post-travel quarantine periods.

Although shipments of finished product out of Shanghai and Hong Kong seemed to be flowing well, Mr Mitchell said uncertainty remained among all manufacturers over access to raw materials due to limitations on transport and the ability of suppliers to reopen.

“That’s the thing worrying everyone,” he said. “We’re fearful that we’ll have a factory that’s got what we want, such as aluminium fittings, but they can’t put them on a truck and get them to us.

“We’re in a district that has been allowed to go back but some suburbs are not, as for some reason the authorities are not letting them. We’ve got one key supplier that is not allowed to go back to work this week due to some kind of concern.”

Echoing Mr Mitchell’s comments, Dayco Australia managing director Arnold Mouw, who also serves as the company’s vice-president for aftermarket in Asia-Pacific, told GoAuto that one factory and one distribution centre in China had received government permission to reopen, with the latter only operating part-time.

Mr Mouw said Dayco’s OE (original equipment) business was “a little more complex” because some global vehicle manufacturers sourced Dayco components out of China, but that the aftermarket side was “not in a threat situation” provided normal supplies could be resumed within 30-60 days.

“Right now we are not impacted because we have enough inventory for probably out until March-April,” he said.

“We’re managing it right now; ultimately it will depend on how long this goes on for … The advantage for us is that we have plants in South America, Europe, United States and India so we’re able to move inventory into different plants, which is what we’re doing.”

In contrast to Mr Mitchell’s comments, Mr Mouw said getting freight out of Chinese ports was “one of the biggest challenges”.

Representing one of the very last links in the supply chain is Jeff Nicol, chief operating officer of automotive aftermarket giant Bapcor, which operates major trade outlet Burson Auto Parts as well as retailers including Autobarn, Autopro and Opposite Lock, plus service and repair chains such as Midas and ABS.

Like others, Mr Nicol told GoAuto that Bapcor had “quite a healthy inventory position” but was “monitoring the situation daily for any changes and updates” and had identified issues that would begin to occur in the event of extended disruptions and delays.

“Other than a few lines that are more affected than others, generally we’ve got quite a diverse supply chain for our whole diverse supply group,” he said.

“If the situation drags on for many months there would be some supply issues that would occur, however, we have also got a range of alternatives that we’ve either got in place or are looking at within Australia or around the world.

“At this stage we don’t foresee any major supply issues … Bapcor has a whole wide range of different companies in all different parts of the supply chain; we’ve been in close contact with all our suppliers, getting information from them and our freight forwarding partners.”