Stress test the supply chain

The global supply chain increasingly relies on China. The arrival of COVID-19 (novel coronavirus) to the world stage exposes the folly of relying on China, or any one region or country, for most of our supply.

The coronavirus has now taken over the front pages of many news outlets and is the concern of billions of people around the world, given the health and human tragedy dimensions of the virus.

We can expect inventories of common items such as auto parts, sneakers, computers, batteries, apparel and electronics to begin to experience shortages. Without the ability to load containers’ worth of goods in China, merchandise will not make it to the stores in a timely fashion.

What we have now come to realize is that 97 percent of all antibiotics in use in America come from China, the very origin of this virus. Many of our medical supplies come from Asia and other regions currently struck with quarantine conditions. So what do we do now?

During the financial crisis of 2008, once we understood the magnitude of the damage, we provided funding for banks and required a stress test to make certain those recapitalized banks could overcome a similar event in the future. These stress tests are reported publicly and clearly indicate the bank’s ability to operate under an unexpected event.

When a company seeks to list its shares in the public markets, it must have audited financial statements. Such audits take into consideration financial information and, more recently, the company’s computer network and its security protocol.

We should institute a stress test for the supply chain. For companies seeking to list their shares in the stock market, for companies that provide goods and services to the government and for companies providing essential goods and services, we should require a stress test report to identify vulnerabilities in a black swan event such as this virus pandemic. 

As an investor, I would certainly want to know where a risk of supply chain disruption exists. Government entities should require this of their vendors to make certain essential goods are not in the hands of others. And we should secure our medical supplies and the supply of essential items. A stress test would identify any risk.

So, while the federal and state governments are focused on seeking therapies and vaccines to control the spread of this virus, we should take a hard lesson learned and institute a test to evaluate risk to our supply chain. Require a stress test of companies serving the public with essential services and make it part of the assessment of companies whose shares trade publicly.

Let’s institute a stress test for the supply chain.

Gary M. Goldfarb is chief strategy officer of Interport Logistics, LLC. He is also chair-elect of the Miami-Dade Beacon Council and a member of the board of directors of the World Trade Center Miami.