COVID19: The Three Phases of Recovery in Manufacturing
How badly has the manufacturing sector been hit by the COVID19 pandemic? Is recovery from the current situation even possible? Given the huge costs imposed by the lockdown and the unpredictable contours of the spread of the contagion, what can manufacturers do to resume their business once the first signs of ‘Unlock 1.0’ are visible? If so, what trajectory will enterprises in manufacturing need to take to make up for the significant losses that have already occurred and the ones that are anticipated to emerge over a period of time?
The United Nations (UN) has projected that the global economy will shrink by 3-4% in the year 2020. As an outcome, manufacturing enterprises need to introspect on the steps that they need to take today, tomorrow, and over the course of time, leading into the future of a post-pandemic world. At Moglix, we believe that enterprises need to visualize the road to recovery by first rebuilding trust today, enabling businesses processes with technology for tomorrow, and building futuristic supply chains using advanced technology for the foreseeable future beyond COVID19.
What Manufacturers Need to Do Today?
Rebuilding Trust: The Great Lockdown in 2020 has lent a major shock to public healthcare systems and has created an enormous trust deficit at both individual and institutional levels. In the manufacturing sector, trust erosion has emancipated in many forms, including withdrawal of labor from participation in production processes, opaqueness in supplier collaboration, and a lack of visibility into insights on key performance indicators of cost, quality, and expected timelines of delivery. As such decisions to deploy resources and engage them into manufacturing during ‘Unlock 1.0’ must be pivoted on addressing the trust deficit secularly first within enterprises and then scaling up across all enterprises constituting the supply chain in the manufacturing sector.
- Ensuring Health Protection: At the enterprise level, this calls for ensuring the availability of quality rated personal protective equipment (PPE) kits, and medical kits for all employees and the creation of fool-proof systems for implementation of standard operating procedures for regular sanitization of the physical environment at the workplace. The second imperative is to ensure transparency in sharing information on the deployment of such social distancing and contact tracing measures on a “need to know basis” among all stakeholders in the supply chain while staying within the ambit of data privacy.
- Fixing the Broken Fragments with Data: Reviewing supplier collaboration and manufacturing workflows today will play a huge role in creating an open and transparent dialog among OEMs, CMs, EPC enterprises, MSMEs, and suppliers across multiple tiers in the supply chain. A pilot project for mapping the supplier network can follow a template similar to the one used by bankers to conduct a stress test of debtors during the Great Meltdown of 2007 and focus on three Cs: character, capability, and credibility. One way to do this is by creating a similar stress test in manufacturing and encompassing the three Cs can be of paramount importance:
- What is the site location of the supplier including the city, region, and country? Do we have insights into the real-time status of COVID19 spread there?
- Is the supplier adhering to social distancing and contact tracing practices to steer clear of COVID19 risks?
- What are the parts procured from this site? What is the part number and description, part cost, annual volume for this part, rate of replenishment of inventory for this part, and the total spend (per year) from this site?
- What is the end product including the OEM’s end product(s) that uses this part? What is the profit margin for the end product(s)?
- What are the lead times from the supplier site to OEM sites in days?
- What is the Time to Recovery (TTR)? What time would it take for a site to be restored to full functionality if the supplier site is down, but the tooling is not damaged or if the tooling is lost?
- What is the cost of loss if expediting components from other locations is possible? If so, at what cost?
- Can additional resources (overtime, more shifts, alternate capacity) be organized to satisfy demand? If so, what is the cost?
- Does the supplier produce only from a single source? Could alternate vendors supply the part? Is the supplier financially stable? Is there variability in performance (lead time, fill rate, quality)?
- What are the mitigation strategies for this supplier-part combination? Who are the alternate suppliers? How to arrange excess inventory?
What Manufacturers Need to Do Tomorrow?
Enabling Business Processes with Technology: As enterprises in manufacturing and supply chain operations look to move beyond the immediate impact of the COVID19 pandemic over the next financial quarter, it shall make sense for them to scale up the best practices from the peak of the recessionary phase and integrate siloed data repositories for multiple functions into a compact source to pay (S2P) platform for a single-window approach to manage approvals and authorization for procurement decisions. This shall serve the purpose of augmenting enterprise-wide transparency and building greater efficiencies by facilitating multi-tenant models for collaboration spanning across the nerve center leadership, customer relationship, and supply chain teams to optimize costs. Small steps towards instituting a digital “cost control tower” to prioritize urgent and important payments and define clear reporting metrics for managers to track the liquidity status in real-time may over the period of the next financial quarter evolve into rolling forecasts to identify major areas of EBITDA risks and finally implement zero-based budgeting (ZBB) to achieve greater fiscal prudence for discretionary expenditures and indirect procurement. Authorization and access to such information systems may slowly be devolved amongst mid-level managers to move the enterprise forward along the lines of supply chain digitization and learning curve from a strategic to a tactical level
What Manufacturers Need to Do in the Future?
Build Futuristic Supply Chains using Advanced Tech: One of the major lessons coming out of the COVD19 pandemic for enterprises in manufacturing shall be gaining visibility into the next steps and future-proofing their supply chains. They will have learned the value of anticipating the next supply chain disruption in advance and adjusting their positions in the market while they still have time to do so.
Using Advanced technologies like contract management and predictive analytics that allow enterprises to stay informed on their supplier relationships, map the contributions of suppliers by value and volume, and assess their exposure to volatile business environments are likely to emerge as the enablers of de-risking supply chains. With AI, ML, and advanced analytics being able to capture deeper insights on the next steps in the supply chain right up to the end consumer, the direction of supply chain automation is likely to direct towards demand-driven planning and forecasting (DDPF).
While temptations to stay in denial of the challenges in a post COVID19 world and to retain the status quo may still be strong, enterprises shall do well not to risk a return to pre-COVID19 coordinates of workflow, collaboration, and distribution. Instances such as the Y2K, the subprime crisis of 2007, and climate change should serve an adequate warning to enterprises to steer clear of the lure of wishing away a rebound of challenges and then waking up to grave realities. A future that is driven by a high degree of technology enablement for information sharing, engaging in transparent dialogs to drive outcomes, and creating coordinated responses to a crisis may present us with a vertical upward shift in costs. Irrespective of how steep the shift in costs may be, it shall be prudent for enterprises to believe that they shall be able to pass on such incremental costs of technology enablement across the downstream of the supply chain right up to the end consumer.