The global COVID-19 pandemic has had mixed impacts on the manufacturing industry. Some manufacturers haven’t seen coronavirus’s impact on their supply chain or demand, some have lost enough demand to scale back their operations, and still others are experiencing a business boom.
In December 2020, with the virus back on the rise after a dip in the summer, the Institute for Supply Management reported continued constraints on inputs for manufacturers. While the manufacturing economy is seeing relatively steady recovery and growth, suppliers continue to grapple with labor shortages, temporary shutdowns, delivery issues, and the challenge of training new employees.
There’s a lot to learn from recent events about inherent risks manufacturers face from any state of disruption.
The COVID-19 crisis galvanized industry leaders to strategize against major supply chain disruption – whether that’s this one or the next. Some of 2020’s top manufacturing technology trends were created to build more secure, resilient supply chains.
Challenges manufacturers face due to massive disruption
Many of the challenges presented by the COVID-19 pandemic were, and are, unique because of the nature of the crisis. However, there are inherent vulnerabilities in the way manufacturers operate that could trigger challenges in any disruption. These include the structure of the global supply chain and inadequate mapping, business tactics that prioritize cost savings and a lack of business continuity planning.
Dependence on Chinese imports
Manufacturers who source from Chinese factories, or whose suppliers do so, faced challenges in getting the materials they needed early in the pandemic and throughout 2020. This was a substantial issue, as China had around 16 percent of world GDP before the crisis hit and many manufacturers relied on them in one form or another to provide raw materials and goods at a lower cost.
However, any such dependence is a vulnerability in the face of disruption. According to the Harvard Business Review, most companies typically only have up to five weeks’ worth of inventory on hand to help them meet demands. This coupled with strong dependence on distant suppliers presents substantial risks.
By mid-year 2020, a third of global supply chain leaders had plans to shift their dependence on Chinese imports and manufacturing – and several had already done so. And getting supply from China continued to be an issue into the end of the year. For November 2020, ISM reported that manufacturers were dealing with significant delays of Chinese imports into U.S. ports.
Did one of your overseas suppliers stop production or experience delays during the pandemic? What impact did that have on your business? And did you have enough visibility over your supply chain to identify these issues quickly?
If you can’t be sure that your organization is resilient in the face of disruption, chances are you don’t have enough visibility into your supply chain. You’re not alone. This is a major challenge facing manufacturers today. According to the Business Continuity Institute’s 2019 Supply Chain Resilience Report, just a fifth of organizations were using technology to map their supply chains to identify potential for disruption before the pandemic. The rest didn’t know what was used, or they were using another method. Without a comprehensive map of your supply chain, it’s difficult to know how you’ll be impacted and what you can do about it. It’s nearly impossible to be proactive.
The pandemic shone a light on this lack of visibility and created a sense of urgency in adopting supply chain technology. Manufacturers and supply chain leaders accelerated their adoption of technologies like the Internet of Things and robotics, and prioritized data and analytics as a means to gain visibility and even foresight.
Data and analytics have become essential for success in manufacturing. They’re key to agility, strength and business continuity.
Lack of Emergency Preparedness
Another challenge for manufacturers is a lack of response planning. Though the COVID-19 crisis is a more extreme disruptor than one would typically account for in emergency planning, many manufacturers don’t even have basic response strategies in place. The National Association of Manufacturers (NAM) reports that only half of manufacturers (50.8%) have emergency response plans.
High Cost of Reactionary Processes
For manufacturers who cut costs in procurement, rely on now-vulnerable suppliers and don’t have an emergency plan in place, it’s hard to gain control of the high cost of reactionary spending amid disruption. In fact, manufacturers saw additional costs associated with late parts and deliveries throughout 2020.
Did you pay for expedited shipping to move a late part forward in 2020? Did one of your essential suppliers stop producing, forcing you to pay extra to source materials elsewhere?
There’s nothing wrong with running “lean” as a manufacturer, but certain strategies are healthier than others.
What manufacturers can do
Many manufacturers spent most of 2020 putting out fires and managing with what they had. Looking ahead, what steps can you take to both recover and fortify your operations against future disruption? Here are the strategies you can implement, even as disruption continues:
Start mapping your suppliers
Mapping your suppliers is tedious, but it is more often worth the investment of time and resources than not. It can help you to prevent even minor disruptions, let alone mitigate the effects of major ones. Trace your supply chain as far as you can to discover potential weaknesses right now and into the future. Learn where your suppliers source their supplies and keep careful documentation of your supplier map. You may find vulnerabilities that you should address immediately, like a fourth-tier supplier that is temporarily closed.
As you build out your map, consult with your tier-one suppliers and ask for their help in the process. Every company along the chain can benefit from greater visibility. Going forward, make such efforts an integral part of your relationships – and contracts – with suppliers. Do they have business continuity plans? Can they map their own suppliers and provide that information to you regularly?
Once you’ve mapped your suppliers, supply chain technology and real-time data and analytics can help you act quickly when disruption occurs – and identify patterns that indicate risk.
Ask yourself “what if?” again and again
To prepare yourself for anything, walk through as many possible scenarios as you can and document your potential response for each. That response should outline key players and their responsibilities, as well as how you’ll communicate changes when it’s time to deploy a strategy.
As an example, if a supplier runs out of X product and can’t provide your next shipment when you need it, what will you do? Do you have alternative resources? Or will you have to get strategic with the supply you have on hand? What will you do if you run out of that product entirely?
Use this as your launching point for developing a stronger business continuity plan.
Implement regular roundtables and communications
At the start of the pandemic, communication and information were important at an hour-by-hour level. You needed to be able to round up key players in and around your company daily to strategize and re-strategize as conditions changed. You also needed to be able to quickly communicate with your workforce and relevant parties, like suppliers. And you had to prioritize outreach to your customer base to keep them updated.
Such communications should continue even after the pandemic is over. These regular roundtables will ensure you’re always on the same page, working off of current and relevant information. Should disruption occur again, you’ll have your team and communications in place.
Did you assemble these key players for regular meetings during the pandemic? If not, who would those key players be for you? Do you have a structure in place for responding to and communicating in-the-moment changes?
Show support for every person in your network
As you navigate through any disruption, do not forget about your most valuable resource: your employees. Beyond communicating your needs and actions as a company to them, be sure to acknowledge their value and address their needs on an individual level. Consider the challenges that they are facing and how you can be a part of their solution. Give them a forum to voice their concerns and don’t turn your back on them.
According to the Harvard Business Review, “the companies that recovered the fastest after Hurricane Katrina in 2005 were those that tracked down all their employees who dispersed across the southeastern United States.” This is a potent fact that every manufacturer should keep in mind when facing disruption.
Diversify and localize more of your supply
As we mentioned, many supply chain leaders have shifted their reliance on China since the pandemic. They’re diversifying to reduce risk in their supply chain. To secure your own supply chain, spread your procurement out in such a way that you’re not tied to just a few companies – especially for your most vital products and processes. You can have multiple suppliers of the same raw material so that, in a time of disruption, you can lean more on one than another.
As part of your diversification strategy, establish relationships and regular transactions with local suppliers. You don’t need to source the majority of your materials from those suppliers, especially if they add significant cost, but having those relationships can make all of the difference in a pinch.
Once you’ve established who these suppliers might be, have a plan for how you’ll go about tapping those resources in a moment of need so you can respond quickly and effectively.
Deploy operational analytics
Moving forward, it will help tremendously to have a better understanding of the health and performance of your manufacturing business, even as the market fluctuates. This will help you to get a grasp on your leading indicators, as opposed to just focusing on lagging indicators like revenue and purchase amounts. These numbers can only reflect a one-to two-dimensional view of your operations. If you base your business decisions solely on these numbers, you won’t be able to achieve the flexibility necessary to grow and innovate with the market. Operational analytics can help you map out where you’re going and optimize your processes in order to meet future goals.
The impact of COVID-19 on manufacturers
COVID-19’s impact is far reaching and has affected every industry. It’s important to stay on top of your operations, model various scenarios and plan for continuity. And supply chain technology, as well as analytics, can mean the difference for manufacturers coming out of this crisis – and facing any future disruption.
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