With Covid-19 impacting all areas of the media and broadcast sector, Andy Stout looks at how supply chains may suffer due to the growing pandemic.

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Coronavirus: Global supply chains due to suffer 

One of the growing number of unknowns about the ongoing coronavirus outbreak is the effect that it will have on the supply side of the industry. There are as ever, estimates and guesses, but as the whole world essentially enters the part of the map tentatively labelled ‘here be dragons’, there is little hard evidence to say what is coming next.

A big part of the problem is that the Just in Time manufacturing system that has been embraced by most industries since it transformed large-scale physical manufacturing in the latter part of the 20th century, relies on the swift flows of goods. Once that flow is interrupted then it creates a cascade all along the chain. As this is the first genuine global disruption to test the model, no one knows quite how it will react.

The optimistic scenario sees it as a pause of whatever length followed by a swift taking up of the slack and a rapid return to pre-virus levels of production. The more pessimistic one models events along the lines of a shockwave motorway traffic jam where one car touching its brakes can cascade into a lengthy tailback as the shockwave travels backwards through the traffic.

“Production slumped in China during late January and most of February as government measures put in place to control the spread of COVID-19 led to many factory closures,” says Chris Evans at Futuresource.

“The greatest impact on manufacturing is expected to be felt in March and April as component inventories dwindle. Based on our broadcast equipment trackers we have already seen a shortfall in sell-in of certain products to Europe in February. It is likely that there has been a similar situation in other regions leading to a build-up of backorders.”

Avid was one of the first broadcast vendors to sound the alarm. On 4 March it issued a statement saying that its supply chain remained operational and continued to produce and deliver product to its global warehouses providing product availability across most of our product offerings.

However, it then went on to caution that it did “expect some level of disruption, including possible delays in scheduled deliveries due to component availability and restricted freight transportation as well as potential delays in projects or delivery of services due to travel restrictions.”

On 24 March it gave IBC365 a slightly terser statement. “Sorry we’re not able to comment on the state of our global supply chain right now,” the company said. “It’s still too early to comment on this. We’re entirely focused on serving our customers as they transition their operations to increase online collaboration.”

Canon, meanwhile, offered the following. “‘We are assessing any potential impact daily. There are some uncertainties relating to the overall impact on our manufacturing, supply chain and logistics; as with all manufacturing companies, we do expect some delays in delivery of parts from suppliers. We are doing everything we can to anticipate and prepare for any potential disruption and will proactively keep customers updated on any specific supply issues.”

In fact, most of the major vendors are unwilling to go on the record at the current time with any opinion, and even the ones that are are sometimes overtaken by events.

Stuart G. Russell is senior communications manager at Ross Video. “The release that we put out [March 6] stated that we didn’t see anything apart from minor effects on the supply chain. We get a whole variety of components and other materials from the Far East, but the cases in China are declining so that seems that things are starting to restart again.

Chris Evans Futuresource

Chris Evans, Futuresource

“We did take a few precautionary measures, we stocked up as far as the factory in Canada is concerned and we did beef up the stockholding we have in our fast turnaround warehouses, so, so far, no major issues.”

On March 25, Ross voluntarily closed its Ontario factory for a two-week shutdown, affecting the shipment of new product until 8 April at the earliest.

Component breakdown
For detail regarding what will and will not happen to the broadcast kit supply chain, you have to cross reference with components used, and news coming out, of the wider industry. Again, it’s a messy and evolving picture, but supply chain analyst Trendforce seems to be edging towards the motorway jam scenario and recently started to downgrade its already pessimistic February reports further.

“Owing to hindrances such as uneven factory work resumption statuses, a generally low rate of returning labour, and breaks in logistics and transportation, the supply chain has not been recovering as previously expected,” it wrote on 5 March, adding that: “The outbreak’s impact is projected to last 1-3 months.”

It sees weakness in the supply of the following components for the following reasons: semiconductors, as most workers in Chinese semiconductor manufacturing sites, comes from out of town and production will, therefore, be affected by labour shortages and movement restrictions; panels, specifically when it comes to back-end module houses, downstream brands, and ODMs — and Feb shipments were down over 10%; fibre optics, where 25% of global production was centred on Wuhan; IT-specific applications of lithium-ion batteries, which was again centred in China ( wider applications tend to be served by Japan, Korea and the US).

Memory seems to be less affected, mainly due to the fact that the advanced fabrication plants behind current production are highly automated and have low demands for labour. Companies also stockpiled impressively around the Chinese New Year. Much will depend on whether demand decline impacts the consumer end of the chain due to recessionary pressures that may hit later in the year. Smartphone production is expected to be taking a 10% hit in the first half of the year, though this may be revised upwards in the face of growing weakness in consumer demand.

Will all this have an effect on the 5G rollout? Undoubtedly. The key components for 5G base stations, such as PCB and optical fibres, are mostly based in Wuhan and other regions in Hubei. But as Richard Broughton from Ampere Analysis points out, “Given the timescales we were already looking at for the deployment of 5G it’s going to be adding months onto a process that is already years away.”

Estimates for the impacts of all this on the industry are being assessed almost in realtime as the outbreak impacts further. An original estimation of the media and entertainment industry taking a $5bn hit from the start of the March now seems almost wildly optimistic. More recent research from Ampere shows that the global box office revenue impact alone of Covid-19 will be $8bn. And that is assuming a (at this point optimistic seeming) return to normal operations within six weeks.

“As the Chinese workforce slowly phases back into the workplace over the coming months the supply chain should begin to improve,” says Evans. “However, as social distancing becomes increasingly common worldwide this has led to many postponements and cancellations of events and projects, inevitably reducing the need for new equipment.”

Vendor response
The impacts this will all have on the vendor community are still being understood. The effects of the virus seem to be moving east to west, which also maps well to the underlying supply chain and there is cautious optimism that the situation in China, the manufacturing heartland of many of the components that make up increasingly commoditised and IT-centric broadcast kit, is starting to improve.

Some vendors are certainly better positioned to bounce back than others though.

“Hardware will be the hardest hit sector in our industry with supply chains being disrupted, but software is at an all-time high in our industry in terms of a percentage of revenues,” says Lorenzo Zanni, Head of Insight & Analysis at the IABM.

Lorenzo Zanni

Lorenzo Zanni, IABM

“Software suppliers are better placed to tackle this transition, especially in supplying cloud-based solutions. As-a-Service models are based on continuous engagement with customers and digital tools rather than hardware ones. Suppliers that have always been very balanced in their transition to as-a-Service models will be able to use their next generation offerings compared to their legacy offerings.”

Indeed, he sees the coronavirus outbreak as accelerating a pivot towards software- and cloud-based workflows and undermining any remaining resistance to techniques such as remote production. Certainly, there has been no shortage of decent offers from companies that have already developed cloud-based workflows, including Avid, Frame.io, Masstech, and others, that are designed to keep people working in the current climate and also highlight the flexibility and continuity of remote working solutions as an agreeable marketing benefit.

“For any vendors with their feet in both camps, software-based and hardware-based, it will encourage everyone to move to next generation, software-based products a bit more quickly than before,” he says. “It’s not the best time for this as when you transition to an as a Service model cash flows are going to take a hit, but from another perspective, it’s an opportunity as buyers are less likely to be risk averse.”