The pandemic has created a crisis for manufacturers around the world, affecting operations and supply chains. Thankfully, technology has solutions for each stage
The manufacturing, automotive, and energy sectors are currently battling tremendous challenges as they respond to the unfolding COVID-19 crisis globally. Manufacturers are responding to extreme changes in the normal product demand as well as their internal fulfillment capability impacted by operational and supply chain disruptions.
Critical to an effective response is the ability to understand the near-term demand picture, respond to supply shortfalls for components and commodities and ensure that operations and staffing levels are right-sized for the current environment.
Manufacturers are naturally trying to understand these challenges and the potential impact on their businesses. Longer-term, these same business leaders will be preparing for an altered economic climate. Each manufacturer’s response will be different, but the following topics are the themes consistent across the manufacturing landscape:
Bracing for the financial impact
The first thing that manufacturers will need to organise is their resources. Cash preservation and access to liquidity facilities (lines of credit) will be a top concern of manufacturing executives as demand remains volatile, supply chains remain uncertain and revenue recognition is strained due to production and logistics challenges.
Many companies may be facing payments or maturity on debt facilities in the near term that will increase the risk of credit defaults and potential bankruptcy. On top of this, variable costs such as salary, advertising, travel and entertainment, R&D, and non-business critical expenditures must come under increased scrutiny as cash preservation becomes paramount.
Many companies may be facing payments or maturity on debt facilities in the near term that will increase the risk of credit defaults and potential bankruptcy.
As manufacturers begin to face financial challenges, near-term furloughs and layoffs become a concern for shop floor and operational workers and large portions of the knowledge worker community. Additionally, many manufacturers have not anticipated remote work to this extent – this includes implementing a remote work infrastructure that both minimises workforce disruption and justifies labor costs while also focusing on re-skilling existing workers for the next generation of manufacturing.
With staffing challenges, both internally and across the industry, come procedural challenges and material shortages across the entire value chain and will ultimately impact deliveries to dealers, distributors, and end customers. We can expect the mid-to longer-term response will include increased investment in flexible sourcing strategies, in-region sourcing, and the exploration of more flexible manufacturing operations – agile lines, contract staffing, additive manufacturing (such as 3D printing), near-net forgings, etc. The power of flexibility in operations is also surfacing; for example, one collaboration has started 3D printing respirator valves for hospitals in Italy due to COVID-19-induced shortages.
Launch and strategy impacts
As expected, formal product launches may be delayed, rescheduled, or canceled because of staffing difficulties or large-gathering restrictions. Additionally, existing business units may become insolvent or no longer be of the value-add kind. This will accelerate divestiture decision-making. Conversely, opportunities will arise for certain industry players to acquire competitors and other related businesses at attractive prices.
Diversified business models and revenue streams will receive increased thought and accelerated execution as core product production and delivery methods experience softness. For example, we may see a shift in after-sales services and advanced services involving pay-per-use and integrated solutions.
Preparing for the short term
Crisis situations like this present an opportunity for change. But in the short term, many organisations will be focused on keeping business operations running. Here are some important immediate steps that manufacturers should consider taking to improve information flow and respond to challenges in a timely manner.
Case management for supply chain and operations issues: This crisis calls for constant communication across customers, dealers, distributors, logistics providers, and part suppliers to help understand and address supply chain and operations issues as they arise. Companies should look to leverage technology (like chat-bots or other AI-driven communications tools) to help minimise response-time delay without added stress on the already-depleting and overwhelmed staff.
As expected, formal product launches may be delayed, rescheduled or cancelled because of staffing difficulties or large-gathering restrictions.
Hack your own supply chain ‘control towers’: The integration of analytics tools, on top of existing ERP and supply chain data sources, can bypass traditional supply chain systems that take months or years to implement in order to achieve short-term visibility. These tools can help improve production and plant performance, enhance sales and operations planning, mobilise the supply chain, and actively respond and react to customer feedback in real-time.
Implement work-from-home support: As this crisis forces so many employees to work from home, you’ll need to consider collaboration and productivity applications that empower your workforce to meet customer needs from home.
For instance, 3M, a global manufacturer of masks and respirators to healthcare providers and organisations, was faced with a shortage of supply since the outbreak of COVID. The company’s personal protective equipment team was inundated with reports of scammers trying to profit from the crisis by attempting to sell counterfeit or non-existent products, or charging grossly inflated prices. 3M harnessed the power of the connected Customer 360 to prevent fraud and help their sales and service teams operate efficiently and continue to drive business in a remote environment.
Technology-enabled 3M to quickly create a Service Cloud instance to support its new COVID-19 Fraud hotline and web form. Using automated case routing, 3M was able to respond faster and improve productivity, allowing the company to more easily track and stop fraud. 3M was also able to customise Sales Cloud to help it evaluate and manage the health of its business, and used Salesforce Anywhere (Quip) to help streamline collaboration between teams and external distributors, and optimise production by shifting resources across its many partners and manufacturing centers.
Overnight, 3M transitioned thousands of their field sales reps to remote sales and equipped them with best practices from their inside sales to convert the field reps to expert remote selling reps.
Preparing for recovery and moving forward
As the immediate crisis subsides, manufacturers will be focused on getting all operations back to normal as fast as possible and an understanding of customer volume and pricing commitments and alignment of operations will be the top priority. Successfully navigating this moment requires agility and responsiveness across the entire value chain.
In prior downturns, companies that invested in customer-facing technologies were able to push profit growth at an accelerated rate versus their peers. In a Bain&Company study, key investments in sales, customer/channel, and marketing technologies were integral to maintaining margins both during and after an economic recession (14 percentage point higher growth in nominal EBIT).
In prior downturns, companies that invested in customer-facing technologies were able to push profit growth at an accelerated rate versus their peers.
How companies respond and strategise will ultimately decide their post-crisis success. Those that choose to lean on technology to help streamline operational efficiency and plan for long-term success will find it. Those that respond reactively, rely on a preexisting infrastructure, and refuse to take risks will ultimately fall behind.
Raj Ravuri is Director Industry Strategy – Manufacturing, Salesforce India