Preparing for recovery: Steps for manufacturers to emerge from crisis
By Dave Borrelli
How Canadian manufacturers can navigate out from the COVID-19 crisis
By Dave Borrelli
Canadian manufacturers might have thought the rail blockades earlier this year would represent their biggest impediment to productivity and growth in 2020. Then the outbreak of COVID-19 began, bringing new meaning to the sector’s definition of “crisis.”
While those in other industries might have been able to replicate some sense of normalcy with employees working from home, the challenges faced by manufacturers is of another order of magnitude.
Some of the immediate examples included responding to extreme changes in normal product demand, as well as internal fulfillment capability being impacted by operational and supply chain disruptions.
Other elements of the coronavirus crisis, however, will play out over months or even years after the Canadian economy is officially reopened, one province at a time.
Following growth that occasionally rose as high as four per cent over the last 10 years, for instance, overall output for the sector may drop by 5.7 per cent this year, according to Canadian Manufacturers and Exporters (CME).
Successfully navigating this moment requires agility and responsiveness across the entire value chain.
Contrast that with data from Statistics Canada, which showed an increase of 0.5 per cent in overall manufacturing sales to $52.6 billion as recently as February. There may be considerable pent-up demand for Canadian products, in other words – but managing it and meeting it won’t be easy.
As with any crisis, effective leadership begins with surveying the landscape and conducting analysis, followed by a strategy that prioritizes actions accordingly.
Each manufacturer’s response will be different, but the following topics are themes consistent across the manufacturing landscape.
Bracing for impact
The first things that manufacturers will need to organize are 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.
A recent study from the Canadian arm of consulting firm Deloitte suggests scenario modelling to determine cash flow needs over time, and focusing on cash-to-conversion cycles that look holistically at payables and receivables as well as inventory.
With manufacturers confronting financial challenges, near-term furloughs and layoffs are a concern for shop floor and operational workers and large portions of the knowledge worker community. In March alone, for instance, Canada’s manufacturing sector lost 34,500 jobs.
Additionally, many manufacturers have not anticipated remote work to this extent – this has included implementing a remote work infrastructure that both minimizes workforce disruption and justifies labour costs, while also focusing on re-skilling existing workers for the next generation of manufacturing.
With staffing challenges come procedural challenges and material shortages across the entire value chain.
This is ultimately impacting deliveries to distributors and end customers. We can expect the mid- to long-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 becoming evident – for example, one collaboration has led to the 3D printing of respirator valves for hospitals in Italy to mitigate COVID-19-induced shortages. Recent investments from NGen may continue to be a source of support for similar efforts.
Launch and strategy
As expected, formal product launches may be delayed, rescheduled or cancelled because of staffing difficulties or large gathering restrictions. Additionally, existing business units may become insolvent or no longer be a value-add.
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.
Crisis situations like this present an opportunity for change – but in the short term, many organizations will be focused on keeping business operations running.
Here are some important immediate steps that manufacturers should consider making to improve information flow and respond to challenges in a timely manner:
1. Case management for supply chain and operations issues.
This crisis calls for constant communication across customers, dealers, distributors, logistics providers and parts suppliers to help understand and address supply chain and operations issues as they arise.
Companies should look to leverage technology (like chatbots or other AI-driven communications tools) to help minimize response-time delay without added stress on the already-depleting and overwhelmed staff.
2. 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, mobilize the supply chain, and respond and react to customer feedback in real-time.
3. 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.
This doesn’t mean manufacturers have to build a new technology stack from scratch, or replace all their existing IT investments. There are software solutions that can help in areas such as forecasting demand, surfacing actionable insights and collaborating from a distance.
Preparing for recovery
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 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 ensure profit growth at an accelerated rate versus their peers. In a recent Bain & Company study, key investments in sales, customer/channel, and marketing technologies were integral to maintaining margins both during and after an economic recession.
How companies respond and strategize 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 – relying on pre-existing infrastructure and not taking risks – will ultimately fall behind.
Dave Borrelli is AVP, commercial and enterprise west for Salesforce Canada.
This article originally appeared in the June 2020 issue of Manufacturing AUTOMATION.