How can manufacturing companies be winners in the “new normal”?
The economic disruption triggered by COVID-19 will produce winners and losers, or at least some companies will cope better than others. IMD in Lausanne has created a useful list of winning and losing sectors as well as those who are “Inbetweeners”:
IMD identified the Manufacturing sector as an “Inbetweener” suggesting that it can either benefit or suffer depending on how this sector responds. IMD analysis cited examples of manufacturing companies switching to the production of ventilators and hand sanitizers to respond to the crisis. This, in our view, will not be a long-term solution for most of the manufacturing companies and below we outline our recommendations for long-term success along six management dimensions:
1. Command center
As the virus is to here to stay for an extended time, the corporate emergency committees that have coordinated the initial response phase will need to shift towards orchestrating with the same vigour the recover and thrive phases. No one knows how the pandemic will evolve other than that it will evolve differently depending on the region. Therefore, it is of paramount importance to think in a number of scenarios (time frame: two to five years) for the “new normal”, track these scenarios and narrow the number of scenarios down over time, ideally. We recommend to not only assess the impact of the pandemic from a medical point of view, but also to incorporate a multi-faceted view on the quality of collaboration between governments, social cohesion, technological advances, etc.
These scenarios must further reflect existing trends such as demographic and climate change which are expected to have an even greater impact on economies and companies in the mid- to long-term than the current pandemic.
While the quantitative constraints on finding talent may ease with increasing unemployment rates, the qualitative constraints on finding the talent with the right skills for the new normal may even intensify. The ongoing efforts to attract and retain the best people must continue as well as the current cooperation between employers and employees in implementing restructurings to secure long-term success and ultimately long-term job protection.
3. Business continuity & financing
Most companies are well experienced to generate and conserve liquidity. In our experience, the most effective way to manage liquidity is through preparing bottom-up 13 weeks rolling liquidity forecasts. This approach, as a positive side effect, also provides better transparency for working capital management through variance analysis of actuals and forecasts.
It is important to keep in mind that downturns also create liquidity (reduction of business activity and thus working capital employed) whilst upswings require investment in working capital and possibly capacity.
4. Supply chain
Most companies don’t have a “supply chain” in the textbook sense. They have different functions such as procurement, manufacturing, logistics, etc. which loosely collaborate, if at all. Further, the number of historically grown supply chains multiply per product, plant, region, etc.
The need for end-to-end supply chain visibility has grown over the years and the current situation painfully proves this point. Global supply chains are severely disrupted by COVID-19 and the challenges stemming from market lockdowns, capacity constraints, cargo restrictions and reduced production capabilities. This makes the need for supply chain agility and responsiveness apparent.
To improve the resilience and flexibility of a supply chain, we recommend reducing complexity as a first step. The ensuing economic recession will provide the rationale to focus on profitable products and markets. This in turn will make it easier to set up proper supply chain governance and deploy digital tools (e.g. cognitive analytics) and eventually shifting towards digital supply networks and smart factories.
An optimised supply chain is not only about agility, but also cost. There is still huge potential to reduce non-quality costs through early identification of human, machine and environmental causes to reduce scrap and recall rates, improve lead-times and enable an overall better quality process.
5. Customer engagement
Invariably companies have made massive efforts to stay close to their customers, show empathy and be flexible in sharing the pain of the COVID-19 impact. COVID-19 has even further accelerated the existing trend towards enhancing customer experience through digital marketing and sales platforms as well as better customer analytics.
Customer engagement is not only about sales, but also joint innovation to improve R&D effectiveness not only for products, but also for services.
6. Digital capabilities
In the last few weeks many companies have seen a digital progression which previously had not been achieved in years. Virtual meetings and trainings have become acceptable with their efficiency and effectiveness highly appreciated. Further, topics such as remote servicing have experienced a huge boost. Digital is an undisputed winner of the COVID-19 crisis and a critical component of each management dimension mentioned above. However, whilst companies must invariably drive digitalisation, it is only possible if they can also appropriately manage cyber risks. Cyber risks, like many risks, can never be fully prevented. Therefore, once a company has achieved reasonable maturity in cyber protection we recommend investing in the ability to recover quickly from a disastrous cyber attack.
The COVID-19 pandemic is a tragedy for the lives and livelihoods of too many people. To mitigate the economic impact of COVID-19 on their stakeholders and to ensure business operations adapt to the changing landscape, companies should now emerge from the initial response phase and take the decisive actions to ultimately come out ahead as winners.