Image credit: Honeywell
The COVID-19 outbreak has sickened more than 1 million people worldwide according to Johns Hopkins University, and it continues to climb. It’s a devastating number, but the coronavirus is impacting more than our health. It is changing the way people live and work and how businesses operate in a global economy. While office workers can work from home and teleconference, manufacturers are in a different position. They can automate production and reduce workforce, but they still need raw materials, and those come through the supply chain.
Coronovirus has upended the global supply chain. While no one is quite sure how things will turn out, one thing is certain: The pandemic will substantially cut into worldwide manufacturing revenues, which were forecasted to reach $15 trillion in 2020.
Manufacturers in Crisis Management Mode
U.S. manufacturing heavily relies on China to provide parts and materials. With the recently imposed trade tariffs, some companies were scaling back. One study of more than 200 leaders of global supply chains shows that 57 percent were looking at locations outside of China for their supply chains. Then COVID-19 hit, and China incurred production stoppages and shortages of raw materials, sub-assemblies, and finished goods for export. Now as it is ramping back up, the U.S. and other countries are slowing down, at least temporarily, while the virus travels the globe.
The market uncertainty coupled with travel restrictions have put manufacturers in crisis management mode. In the near term, manufacturers will scramble to secure materials they need. They’ll also find out how much leverage they have with their suppliers as they jockey to receive parts first.
The response to the pandemic from manufacturers was swift, as companies looked for ways to optimize existing plants for increased production. For example, in March, Honeywell pivoted to quickly ramp up production and make millions of the in-demand N95 masks in the United States. The manufacturer added 500 jobs and expanded manufacturing operations in a factory in Smithfield, Rhode Island, which also produces UVEX safety glasses.
Longer term, manufacturers will have to make changes based on strategic considerations: Does it make sense to shift some development closer to home? How will that impact cost, and is the tradeoff worth it? How much stock should they have to carry them through a crisis or disaster?
Preparing for Recovery
Researchers at the Digital Supply Chain Institute are suggesting companies establish a “war room” to track the impact of the coronavirus and consider automation and analytics technologies that can help mitigate future risks. The goal is to assess the impact of having fewer parts or supplies, developing alternate supply sources, and adjusting product launches. Manufacturers should evaluate their risk exposure at tiers 1, 2, and 3 of the supply chain and develop a strategy that can be implemented quickly. The plan should consider demand fluctuations, people, technology, and risk.
Changing suppliers is one option, but a long-term approach can be found in “nomadic sourcing,” which is the ability to shift production to lower cost or higher value geographic regions. To ensure the success of nomadic sourcing, manufacturers should adopt customer-focused supply chains, more automated processes, new IoT and manufacturing technologies, and AI-supported algorithms.
New IoT-based technologies will help. Increased automation and 3D manufacturing can increase flexibility in the supply chain. IoT allows more insight into part and product sourcing and can send notifications if there are backlogs. Complex supply chains can be organized into “silos” based on location or supplier; IoT provides companies with real-time information on part or job status across the entire chain. With early notification via IoT technologies, manufacturers can act to mitigate or alleviate problems.
In addition, enterprise resource planning (ERP) software that includes modules for inventory control and supply chain management will also help, but they should go beyond tracking. The software should provide risk analysis and run simulations, so manufacturers can identify the weak links in their supply chains. In today’s global economy, companies should expect disruptions—health outbreaks, political changes, and natural disasters—and prepare for them now.
- Learn how Intel built a responsible supply chain here.