Coronavirus Outbreak Has Led to Global Shortage and Price Gouging of Surgical Masks • Resilinc Identified 213 Suppliers and 491 Sites Available in Database

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Coronavirus Outbreak Has Led to Global Shortage and Price Gouging of Surgical Masks • Resilinc Identified 213 Suppliers and 491 Sites Available in Database 1 SUPPLY Coronavirus CHAIN Outbreak RISK The case for planning, preparedness REPORT and proactive action 2nd in a Series of Conference Calls UPDATED MARCH 4, 2020 CONFIDENTIAL – FOR YOUR EYES ONLY © 2020 Resilinc Corporation. All rights reserved. 2 Speakers Moderated by: Jigar Shah Sr. Director of Marketing Resilinc Bindiya Vakil Founder and CEO Resilinc © 2020 Resilinc Corporation. All rights reserved. 3 Agenda • Background Assessing • Notes for SC professionals • Current Updates • Just the Numbers: COVID-19 Planning • Mapped: worldwide exposure • Global impact by industry • Supply chain mapped: suppliers, sites, & parts Preparedness • Recommendations • Scenarios and Planning Horizons • What Resilinc is doing • What we suggest Action • Q & A © 2020 Resilinc Corporation. All rights reserved. 4 Background © 2020 Resilinc Corporation. All rights reserved. 5 What we know about the Coronavirus (2019nCoV) • Nearly 100,000 infected with almost 3,300 fatalities Dec 31, ’19 China reports pneumonia-like cases in Wuhan to WHO China authorities reported signs of pneumonia-like outbreak in Jan 4, ’20 • Similar to SARS and MERS (2012), also the common cold, Wuhan but has spread wider Jan 9, ‘20 WHO identifies virus as a coronavirus (similar to SARS) Jan 22, ‘20 All travel in/out and intra-province transit within Wuhan is at a • Known cases are due to direct, second and third level standstill contact i.e. spreading through touching infected surfaces Jan 30, ‘20 WHO designates Coronavirus as a Global Public Health Emergency • 1 Person can spread to 2.2 people (R-naught) compared to Feb 4, ’20 South Korea: Hyundai and Kai suspend manufacturing Spanish Flu which had an R-naught of 1.8 operations Feb 11, ’20 WHO official names Coronavirus as COVID-19 • Current fatality rate 3.4%, was 2% before March (this is Feb 18, ’20 Global Economy: China will decline by an est. 4.5% in possibly lower, because mild cases not known) Q1Y20 and Japan projected 6.3% annual decline • MERS (35%) Feb 22, ‘20 South Korea: Samsung, LG Electronics, LG Display, Toray • SARS (10-14%) Group and other companies pause manufacturing operations • 1918 Spanish Flu (2.5%) Feb 24, ’20 South Korea Raises Threat Alert Level; Turkey and Pakistan Close Border with Iran as Covid-19 Continues to Spread • Flu (0.1%) • Swine Flu (0.02%) Mar 2, ‘20 WHO Calls Coronavirus in South Korea, Italy, Iran and Japan Its ‘Greatest Concern’ • No specific treatment options for Coronaviruses (CDC) Mar 2, ‘20 US supply chains and ports under strain from coronavirus: warnings of extended disruptions as heighten focus on China’s outsized role in global sourcing © 2020 Resilinc Corporation. All rights reserved. 6 • Phase 1: A virus in animals has caused no known World Health Organization’s infections in humans. Phases of Pandemic • Phase 2: An animal flu virus has caused infection in humans. • Phase 3: Sporadic cases or small clusters of disease occur in humans. Human-to-human transmission, if any, is insufficient to cause community-level outbreaks. • Phase 4: The risk for a pandemic is greatly increased but not certain. • Phase 5: Spread of disease between humans is occurring in more than one country of one WHO region. Source: https://www.webmd.com/cold-and-flu/what-are-epidemics-pandemics-outbreaks#2 • Phase 6: Community-level outbreaks are in at least one additional country in a different WHO region from phase 5 - a global pandemic is under way. © 2020 Resilinc Corporation. All rights reserved. 7 Unfortunately, the intensity of the coverage is growing • Media coverage • Frequent media reports of new cases, fatalities and spread • Media coverage of government response measures triggers a chain reaction • 1.9 trillion links referencing coronavirus (and growing) • Individual response to news • People staying home, avoiding workplaces, keeping children home, curbing essential travel • Hoarding of medication and essential supplies can cause supply chain demand – supply gaps and signification local and global upheaval • Government action • Large scale and widespread shut down of cities or affected towns can disrupt global supply chains far away from affected areas, cause extended transportation delays, capacity shortages, supply constraints and factory downtime or allocations. • Strong Market reaction • Stock market investors reacting to concerning news growing in scale can start selling stocks to switch to safer investment options, affecting stock prices in the near term, thereby affecting companies’ ability to raise capital. • Medium term, this can lead to accelerated layoffs, profit warnings, bankruptcies, supplier failure. © 2020 Resilinc Corporation. All rights reserved. 8 Manufacturing activity is slowed down • Part shortages: 75% By end of March, all • Workforce outages: 55% could be Red, if shut • Transportation disruptions: 70% down & quarantines expand through March • Cannot deliver to customers: 22% • Capacity under-utilized due to all above reasons: 33% Heavy reliance on inventory and allocation of constrained parts through mid-March Auto, High Tech & Industrial, Medical Pharma- Life Consumer Consumer Semiconductor Healthcare Current Observations Heavy Devices Sciences Goods electronics Machinery FG Inventory buffers reduced Lead times getting pushed out PO deliveries delayed Supplier allocations Lines down Customers on allocation Revenue Lost © 2020 Resilinc Corporation. All rights reserved. Widespread Some Commodities 9 China Factory Labor Shortages: What to expect Current 78% Companies in China report that there is not enough staff to resume work 3%-7% Workers able to return to work in affected areas 25% Businesses operating normally in Central Sichuan province 6-Month Outlook: • Workers not paid by employers during shutdown (or partially paid) will leave • Some workers permanently displaced – will find better paying jobs at larger companies • Some jobs will be lost to layoffs • Larger, cash rich companies will be able to secure workers by paying premiums • Smaller companies will struggle to fill positions and restart operations Workforce disruptions expected to continue well into next two quarters © 2020 Resilinc Corporation. All rights reserved. 10 Logistics Companies: A Mixed Outlook Near term risks: 6-month outlook for shippers: • Drop in ocean freight traffic Lost revenue • Transfer of shipments to air freight for expediting shipments • Inability to secure staff to resume • Near term low fuel costs will help offset loading/unloading and processing some shipping costs, but expected to rise operations inability to take advantage of through recovery near-term opportunities • Demand for higher capacity in coming • Current reduced pricing could get locked months on key lanes could cause into long term contracts some shipping companies to reduce capacity on less lines could experience financial distress profitable lanes • Logistics pricing expected to be volatile in the medium term to fuel recovery • Capacity constraints expected on all modes once recovery resumes © 2020 Resilinc Corporation. All rights reserved. 11 Can we count on Insurance to cover financial losses • Types of losses companies are incurring: Financial losses include lost revenue, premiums paid to secure raw materials and parts, emergency labor costs, expedited freight costs, cash burn due to factory downtime, employee monitoring and protection costs ________________ • Property policies usually cover physical loss or damage to insured property resulting from a covered risk. • Site has to suffer physical damage • Risk has to be covered peril loss of profits because of people not able to come to work, or government travel restrictions generally does not trigger property insurance coverage. • Contingent Business Interruption (CBI) requires covered direct physical damage to property of a named customer or supplier. Coronavirus has not caused physical damage to property, so financial losses would generally not be covered. • Trade disruption insurance (TDI) covers loss of earnings, unforeseen costs and contractual penalties that result from disrupted trade flows. • Generally TDI does not require that there be a direct physical loss to goods or their conveyances. • Could provide some level of protection to companies Source: https://www.willistowerswatson.com/en-US/Insights/2020/02/would-insurance-policies-cover-losses-related-to-coronavirus © 2020 Resilinc Corporation. All rights reserved. 12 Small Company Financial Distress Risk is Very High Current situation: • Fall in demand – some lost forever (e.g. closed restaurants, canceled trade shows, public gatherings, travel plans etc.) • Companies that can supply parts have found customer factories are shut down and cannot receive shipments, therefore, cannot collect payment • Cash remains tied up in FG, collections at standstill, payments continue to pile up. 65% of small companies in China have 2 months of cash What we recommend: • Invest in robust supplier financial monitoring (focus on private companies) • Calculate revenue impact of a supplier • Establish an emergency fund to prop up weak supplier with high revenue impact • Set aside budget to secure life-time buy inventory where supplier failure is highly likely • Don’t just monitor China based suppliers – all small companies are potentially at risk because of the evolving outbreak and interconnected supply chain © 2020 Resilinc Corporation. All rights reserved. 13 Just the Numbers: COVID-19 © 2020 Resilinc Corporation. All rights reserved. 14 Manufacturing Dependence on Asia • Over 50% of global manufacturing output
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