COVID-19 is taking a serious toll not only on healthcare systems around the world but on all facets of life–including manufacturing. Looking ahead, manufacturers should not spend all of their energy on merely surviving this pandemic but should also carefully figure out how to use this time to accelerate their digitalization strategy. And this starts by gaining a deeper understanding of the outbreak and its aftermath.
In this article, we explore the impact COVID-19 has had on manufacturing so far and break the crisis down into four distinct phases. We’ll then explore ways in which you can use the lull in activity to prepare for the day after the virus, making sure you recover faster and with a greater competitive edge than before.
COVID-19 has led to a significant slowdown in economic activity. Many employees are in lockdown or working from home, and manufacturing in many sectors has almost ground to a complete halt, with the Purchasing Managers Index (PMI) dropping to its lowest point since 2009.
Figure 1: Coronavirus Impacts Are Clear on Global Manufacturing Index (Source: IHS Markit via ENR.com)
China, which accounts for a third of all global manufacturing, was the first to take the hit. Over the first two months of 2020, the country’s industrial production dropped by 13.5% and car sales decreased by 86%. As the virus spread, this slowdown began to reach all corners of the world.
On March 23, the Alliance for Automotive Innovation published that 95% of US automotive production had been taken offline, and over the past few weeks, a long list of automakers across Europe and the US have announced temporary shutdowns. This includes the three major American automakers: Ford, General Motors, and Fiat Chrysler Automobiles.
The impact on the semiconductor industry has taken a somewhat different turn. The Semiconductor Industry Association issued a white paper on March 25 advocating that semiconductor production is essential for sectors such as healthcare, medical devices, energy, manufacturing, and finance and should thus continue operating. In an effort to keep their factory doors open, fabs around the world are taking steps to adapt to the new reality, including new measures and precautions as is the case with this chip foundry.
Yet despite these efforts, the IDC projects that semiconductor revenues will diminish significantly in 2020, and the global market’s year-over-year revenue growth rate will plummet by 6%, resulting in a revenue decline of $25.8 billion.
The question on everyone’s mind is, “How long will this last?” According to a recent CNBC Global CFO Council survey, companies expect to return to business as usual within three to six months. In the same report, however, a Gartner supply chain expert expressed a more pessimistic view, stating that while manufacturers will return to some form of normalcy within a couple of months, it could take up to nine months for operations to fully recover.
That being said, the most honest answer to the question above is that we just don’t know yet. With the precarious state of public health systems, no one really knows how long employees will be sitting at home or when supply chains will fully be back up and running.
What we do know for certain is that from an economic standpoint, the COVID-19 crisis will go through four stages:
Figure 2: The Four Stages of the Crisis (Source: OptimalPlus)
To bring some certainty into this highly uncertain situation, companies should prepare a business plan to handle each stage of the crisis, taking into account that every phase comes with its own unique set of challenges. Furthermore, these challenges may differ radically depending on the product type and target market.
During the crisis, manufacturers must adapt to a reality in which demand is low and component availability limited. They must also brace themselves for chain reactions that affect entire ecosystems. To take a simple example, as automotive manufacturers shut down, their tier-1 and tier-2 suppliers will be forced to slow down or shut down as well, creating a ripple effect that trickles all the way down to car dealerships and the end customer. Additionally, the interconnected nature of the supply chain that brings everything down together will also make it difficult for things to pick back up again.
In the aftershock, inventories may be high, and customers won’t necessarily be buying new products, so supply chains will remain disrupted. Take China for example. Factories in China are already gradually coming back online, but while the virus is raging elsewhere, especially in G7 countries, there are no consumers or proper distribution methods to absorb China’s goods.
As things start up again, the recovering supply chain will remain inefficient and highly complex for quite some time, with supply and demand at odds with one another. In addition, it will take time for manufacturers to get operations back up and running as usual. To do so will entail a long list of time-consuming tasks, such as bringing back employees who were laid off, importing foreign workers from other countries, training employees, and rearranging the structure of shifts.
During the recovery, manufacturing volumes will have to ramp up quickly, in some cases going from 30% to 100% capacity. To do so seamlessly, manufacturers will have to pay meticulous attention to a wide array of issues, such as workflow supervision, the quality of incoming material, delivery times, and product quality.
Beyond these operational issues, companies will also need to take a step back to reevaluate the changed market landscape. This means identifying changes brought on by the crisis and its aftermath, such as demand for new products or weakened competitors, and adapting accordingly.
In a crisis like this, focusing on survival is not enough. Manufacturers must address two important questions: how to shorten their recovery time and how to emerge from this crisis with a greater market share than before.
Now is the time to think strategically and figure out how to better prepare and position your company for the day when this pandemic is behind us. In the long run, formulating such a strategy might very well separate the success stories from the failures.
Over the years, a lot has been written about how Big Data, Analytics, AI, Cloud Computing, and Machine Learning can dramatically increase efficiency, yield, reliability, and product quality. While many companies have experimented with these technologies, most have not had the time or the resources to step back and take a deeper look at their overall digitalization strategy.
Right now, manufacturers have a rare opportunity to devote time to this issue, laying down infrastructure that can lead to a swift recovery and heightened competitive edge once operations ramp up again. This all starts with a solid digitalization strategy. With this in place, manufacturers can make broader use of technology to improve operational performance. So where do you begin?
Now is the time to ask questions such as:
At OptimalPlus, we have been helping some of the world’s largest automotive and semiconductor companies answer these questions with our holistic solutions and open-platform approach. Find out how you can gain a competitive advantage today to handle the ongoing crisis as well jump ahead once COVID-19 is a thing of the past.
You can also use this time to read up on other topics that can help accelerate your business, such as becoming a data-driven manufacturer using our end-to-end machine learning platform and how to apply Big Data and Analytics across your entire supply chain for real-time insights on the factory floor. Or delve into how to automate your vision inspection processes and how to boost production-line efficiency with OptimalPlus’ mission-critical lot disposition solution.
COVID-19 is a crisis everyone is having to deal with; how you deal with it and how you use this time will differentiate the winners from the losers when normalcy inevitably returns. Now is the time to invest in your digitalization strategy and bring it to the factory floor with solutions like OptimalPlus.
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