Finding the silver lining ? Lessons Manufacturers Might Learn From The Covid-19 Pandemic
In recent months, the world has been catapulted onto an unprecedented rollercoaster ride. We have gone from being preoccupied with our daily routines, jobs and ordinary lives to being glued to the news-channels as we watch the inexorable spread of the dreaded coronavirus. A threat that has moved from being a remote possibility “out there” to one that threatens to impact on every single person on earth today. The newspaper rhetoric has rapidly shifted from endless talk about Brexit, US-China trade wars, and national election shenanigans to an almost blanket focus on the Covid-19 coronavirus.
As individuals, we have moved on from planning our summer vacations, our business projections, and our retirement nest-eggs, to not being able to think very much past the next few hours. As strange and terrifying as this new reality is, it is not the first time the world has experienced life-changing events.
Every now and then in our history, something occurs that shakes things up and causes mankind to wonder whether life will ever be the same again. Disasters like the 9/11 terror-attack and the 2004 Asian Tsunami cause people to question what we are living for and what we truly value. Economic shocks like the 2008 global financial crisis, similarly destabilize the structures upon which we rely and force policy-makers to make sense of what happened and try to be better prepared for the future.
As every country today does its best to protect citizens from the massive public-health emergency we are currently facing, questions are already being asked about how we can ready ourselves for a possible future epidemic and all the challenges it might pose to safety, commerce and travel. With airports shutting down, borders closing to outsiders and governments scrabbling to get hold of sufficient medications, ventilators, masks, scrubs – and even basic necessities like toilet paper – manufacturers are questioning their current practices and consider how they can be ready to take on any future disruption to what we have taken for granted will always be.
No one knows what the future holds, but without a doubt, current events have forced manufacturers to examine their supply chains and modes of operation and consider whether there might be better, safer, more robust alternatives. While the saga is not yet over, as we stand today the Covid-19 epidemic has brought to light many important questions and considerations for manufacturers and governments relying on their products.
Let’s look at some big questions those of us in the world of manufacturing are grappling with today.
Have We Relied Too Heavily on one manufacturing location?
Tech giant, Apple, recently reported to its investors that it would fail to meet projected revenue targets because of a delay in sourcing essential components from its iPhone manufacturing partners in Hubei province – the original epicenter of the coronavirus. Microsoft and Sony have reported similar problems resulting in delays in getting popular products like the Xbox’s and PlayStation (very important at this challenging time!) onto the shelves. More than half the global production of TV display panels and LCDs take place in China with five factories making LCDs, and OLEDs for television and laptop monitors situated in Wuhan, the hardest-hit Chinese city. The closure of Wuhan factories has dented production of these essential items and has led to a significant rise in prices.
Even more critical in these times is the fact that retail pharmacies across Europe and the States have been unable to source enough surgical masks because most of the masks are manufactured in China. The picture is the same across industries. Overall, 94 percent of Fortune 1000 companies surveyed have experienced supply-chain disruption due to the coronavirus. Another survey by the American Chamber of Commerce in Shanghai found that nearly half of the 109 companies surveyed there also reported disrupted supply chains due to the virus and they expected these disruptions to go one for months or more.
The automotive industry has been similarly impacted and has been in almost complete shut-down since late January. Wuhan has long been a massive center of automotive production. The closure of factories in that city, and those of neighboring cities, has thrown more than 50 million people into isolation and brought factory production to a virtual standstill. The production and shipment of Chinese-made auto parts and components to the U.S. is a market worth about $17 billion last year. Car manufacturers like Honda, GM, and Hyundai are already showing signs of strain. Tesla has also cited the coronavirus for postponed Model 3 deliveries.
These disruptions, across a wide range of industries, are causing manufacturers and governments the world over to reconsider where to buy and produce goods and in particular to think about the risks of putting “too many eggs in one basket” by relying heavily on only one or limited sources for manufacturing components. Once the current crisis is over, will we all go back to business as usual or will we reconsider our supply chains? What happened this time in China, could have happened to any country, which leads to our next question…
Do We Need To Diversify Our Supply Chains in the Future?
As a global economy, we have flourished and thrived due to our interconnectedness. The relative ease of travel, seamless import and export to most places, and low resistance to shipping products across the world have meant that manufacturers have developed diverse supply chains crossing borders and locations. This way of operating has allowed manufacturers to source the cheapest raw materials and to hire cost-effective, skilled labor from around the world – and that was all well and good, until now.
The crisis we are facing today with the spread of Covid-19 has highlighted that our interconnectivity is not always a good thing. The same ease that allowed us to ship and produce products all over the world has also facilitated the spread of a deadly disease. In our rush to prevent the ominous spread, we are finding our supply-chains heavily disrupted and we have lost access to essential products such as medications and surgical equipment not to mention basic necessities and conveniences, like cars and computers.
Policy-makers, governments, and manufacturers are already trying to learn lessons from this. Many feel that diversifying supply chains as much as possible will be the way forward. More diversification will mean that if one location is hard-hit by some crisis, another location can compensate. Reflecting this view, Michael Dunne, the CEO of Zozo Go (a consultancy firm for automakers in Asian markets) says, “there is no question in my mind that this outbreak will accelerate plans to diversify risks.” There is already a recent precedent in Japan, which suffered the 2011 tsunami and the Fukushima nuclear reactor disaster. These events triggered severe disruptions to auto supply chains which caused manufacturers at the time to adapt their models in anticipation of future disruptions. Any disaster throws light on inefficiencies and weaknesses in a system, and this recent global pandemic, which has left virtually no country unaffected, has powerfully flagged-up the weaknesses in our global supply chain practices.
Mary Lovely, senior fellow at the Peterson Institute and economics professor at Syracuse University, says “you can move out of China, but you could also move within China.” While some companies’ plans to diversify manufacturing outside of China were already underway before this recent crisis, many that are deeply entrenched in China will be unsure what to do now. Lovely is pointing out that within China itself, there may be room to diversify. Right now, for example, factories in Hubei province remain closed but some factories in Beijing, are already turning the light back on. Diversification may mean global or local depending on the nature of your business.
Wherever one stands on the issue of diversification of supply chains, however, it seems certain that companies from across the globe will be questioning whether the low cost of manufacturing products overseas will be worth the uncertainty that is part of the package. Companies will need to work out for themselves how best to balance out the risks and rewards of a global supply chain. It could be that for many, greater diversification might be the best, and the only, way to ensure some level of protection from the unforeseen and unexpected.
Will We Continue With Online and Remote Working After The Crisis Subsides?
The strange thing about shake-ups is that after the source of the “shake” has disappeared, things do not always go back to how they were before. As an article in Bloomberg points out, “the great depression spurred a “waste not want not” attitude that defined consumer patterns for decades…. The Asian financial crisis left the region hoarding the world’s biggest collection of foreign exchange. More recently, the 2008 global financial crisis drove a wedge through mature democracies that still reverberates, with workers suffering measly pay gains in the decade since.”
With the current state of emergency faced by nearly every country, companies from across the developed world are implementing work-from-home structures to keep their businesses running and ensure that their employees comply with social distancing guidelines. Working remotely is not a new idea, however. The popularity of this practice had been growing for some time before this current crisis and working from home had become a part of many employees’ regular schedules. Karen Harris, managing director of consultancy Bain’s Macro Trends Group in New York, notes that “once effective work-from-home policies are established, they are likely to stick.” Similarly, Kate Lister, president of Global Workplace Analytics, told CNBC that she expected the coronavirus to be a tipping point in favor of working from home.
While it is easy to see how working from home might be a possibility for many businesses, when it comes to manufacturing, it’s harder to see how a factory could successfully oversee operations without a physical presence on the factory floor. This is something we addressed in our blog post, Working Remotely: Is It Even Possible In Manufacturing?
Factories are becoming more and more sophisticated in this era of industry 4.0 in which we find ourselves. New technologies like Smart factories and AI, will make it possible for factories to effectively “run themselves.” The internet of things and the hyper-connectivity of machines makes remote monitoring of factories more of a reality than ever before. Monitoring software, for example, can provide a complete picture of everything happening along your assembly lines. By accessing software remotely, factory managers can make sure machines are working optimally even if they are not present. If problems are flagged through the software solution, factory managers could contact a skeleton-team of workers on the ground who could resolve them. Adapting to managing factories more remotely will add flexibility and may reduce costs. It might also protect factories from unforeseen circumstances like disasters and ensure they can keep running even in difficult times.
Car manufacturers are already leading the way in being creative about remote working capabilities. Ford, General Motors, and Fiat Chrysler have reportedly told non-factory employees to work remotely wherever possible to avoid contracting and spreading the coronavirus. Fiat Chrysler CEO Mike Manley announced changes to “production techniques” at several of its manufacturing plants to allow employees to create more space between themselves while at work. He also said that Fiat Chrysler are “accelerating the deployment of working remotely” on a department-by-department basis” and that remote-working practices have become the “new normal” in places hard-hit by the virus, like China, Korea, Japan, and Italy. General Motors asked all its employees and contractors to work remotely wherever “work allows it,” according to an email from company CEO Mary Barra. Barra also said the company is adjusting work schedules in its manufacturing, product development, customer care, and after-sales divisions to allow for this new way of working.
Once companies have adapted to these new practices, they may appreciate many of the advantages of working this way and see no reason to go back to outmoded ways of working. Here again, is another way in which life may be permanently affected by a crisis. We will have to wait and see what happens.
Where Should We Source Our “Essentials” In the Future?
As governments the world over are desperately trying to ensure that hospitals are equipped with enough masks, ventilators, testing-kits, and drugs to fight the current epidemic, we are reminded of one of the more scary issues raised by the current crisis – where should we manufacture our essentials?
About 72% of pharmaceutical-ingredient manufacturers supplying the US are overseas, including 13% in China, according to the FDA. US Lawmakers have expressed concern about drug shortages during the coronavirus outbreak and are pressing pharmaceutical companies to return pharmaceutical manufacturing to local shores. Does it really make sense to rely on drugs and urgent medical supplies sourced from other countries when the world has been reminded of how rapidly and unexpectedly borders can be shut and planes are grounded? It seems that many countries have left themselves exposed to potential disaster through such dangerous practices. US Senators Marsha Blackburn, R-Tenn., and Bob Menendez, D-N.J., introduced a recent bill proposing to funnel $100 million into developing US drug manufacturing facilities. Senator Blackburn noted that “when confronted with a serious challenge such as the coronavirus, it is important to take stock, look at lessons learned and build upon them in order to respond better the next time.”
Similar issues are cropping up in the UK where the government has asked British manufacturing giants such as Dyson and JCB to rapidly convert their production lines for the building of ventilators for hospitals. These firms are being faced with the arduous task of overhauling their entire supply chain and production lines, as well as hastily re-training staff so they can make these critical life-support devices. But why were they in this position in the first place?
In Spain, Inditex, the company that owns the retail chain, Zara, has offered to step up to the cause by converting some of their factories for manufacturing hospital-scrubs in an effort to meet the huge shortage.
While these acts of heroism are heartwarming and inspiring, we have to ask ourselves why we have left ourselves so exposed in the first place?
Manufacturers and governments will surely now be making plans to ensure that essential and much-needed items will be manufactured, at least in large part, on local shores.
Over to you…
It is hard to make sense of everything while we are still in the midst of crisis and don’t yet know what the outcome will be. Many feel that life will resume as “normal” in a few months’ time, while others remain convinced that the changes precipitated by this recent pandemic will stick for the long term and that the world will never quite be the same. While we can’t know for certain which it will be, we can make use of this enforced pause in “business-as-usual” to try and figure out how we can protect ourselves and our businesses from future unexpected events. The issues raised in this report will apply to many manufacturers going forward. Now is the ideal time to plan and strategize your next steps towards a hopefully, bright and prosperous future.