So, there is nothing that can be written here that you don’t already know about Corona Virus. We all know not just the big health implications but we are starting to put into perspective the financial hit this crisis will bring.
According to Bloomberg´s report on the COVID-19 economic impact, manufacturers will be the fifth most affected business vertical. Many small manufacturers will suffer the devastating effects of a major economic crisis in the following months, while big corporations will see how their stocks will tumble to their lowest level in nearly a decade.
Like all financial crises, it will come to an end and a period of economic growth will take its place. But exactly how (and how fast) will manufacturers achieve this recovery? This will depend on how companies face these three major issues:
1. Redesign of the supply chain.
OK, this is a tricky one. Many manufacturers will reconsider a complete reshape of their entire supply chain, as stated by MIT expert Willy Shih in his Article Is it Time to Rethink Globalized Supply Chains? This will cause a major change in how certain supply networks behave, especially those that rely heavily on offshore markets such as China or India. Demand swings will affect distribution prices and a global oil oversupply will represent a major incentive to rethink regional suppliers. To take full advantage of the new market conditions manufacturers and distributors must use technology to keep track of all distribution, oil prices and other valuable data to optimize how their distribution is fulfilled. Companies that implement smart algorithms will take the most advantage of this situation.
2. Exponential Lean processes.
Manufacturers have always had a front race towards cost reduction. However, digital technologies offer extremely valuable, low-cost solutions to have a full contextual production. This means a complete track of all production variables such as process, products, and environment. This will drastically reduce the cost of quality, eliminating hidden factories (see this HBR article on hidden factories) and producing with complete contextual awareness to produce more and cheaper. Lean by itself will not be enough.
3. Smart planning for new demand conditions.
The changing financial situation will increase the demand volatility, creating an unsubstantiated need to have more inventory or to underutilize asset capacity. To minimize this effect, companies must use technology to gather real-time data and use it as input for smart algorithms that will optimize production scheduling and define how and what factories will produce. These Production Schedule Algorithms must take into consideration asset utilization., forecast demand to foresee all market fluctuations and react in a matter of seconds. By reducing the need for end-product inventory, and incrementing the asset utilization, these technologies will have a huge impact on the manufacturer’s cash flow.
In the post-COVID world, digital technologies will play a fundamental role in the economic recovery of any business vertical. Manufacturers must engage in quick digital implementations to react to the changing economies and to arise from the major financial crisis that the Corona Virus is causing.