What Does This Mean for Manufacturers?
Global supply chains are facing disruption under the outbreak of the novel coronavirus, COVID-19.
In the first two months of 2020 alone, we saw stock prices fall, interest rates cut due to the threat, and major businesses, such as Apple, issuing warnings that they will miss their revenue forecasts.
Across the world, the COVID-19 is causing manufacturing delays that are affecting almost all industries.
Global Supply Chain Disruption – Why Is It Happening?
The spread of COVID-19 has led to the closure of many factories in China as employees are quarantined. As a result, in February 2020, China’s manufacturing, which makes up a third of the world’s manufacturing and is the world’s largest exporter, hit a record low.
In January, the Purchasing Managers’ Index (PMI) dropped from 50 to 35.7. According to the BBC, COVID-19 is having a bigger impact than last decade’s financial crisis.
Some analysis has compared the COVID-19 outbreak to the SARS epidemic of 2002-2003. However, Harvard Business Review noted that it’s a very different landscape now.
In the past 18 years, China has more than doubled its share of trade with the rest of the world. Many more industries are reliant on its production.
According to The Canadian Press, smartphone production is as low as 10% of its normal levels. Even other industries outside of manufacturing — such as airlines, tourism, and the oil and gas economy – are taking a hit.
The result is a massive supply chain disturbance for many businesses.
Creating a More Resilient Supply Chain
The spread of COVID-19 and subsequent disruption has many manufacturers considering their own production practices.
The disturbance has pointed to a need for more resilient supply chains. Several methods can be used to achieve this.
- Reshoring, Onshoring, and Nearshoring
One of the considerations many organizations are making is changing their supply chain to reduce reliance on China. This includes reshoring closer to home.
According to Harvard Business Review, COVID-19 “illustrates the vulnerability of having so many sources located in one spot — and a spot that is far away from critical markets in North America, Europe, and Latin America.”
Manufacturers are achieving this in two ways: by redesigning supply chains with second sources, so there is a backup capacity, and by redesigning to source locally.
Deloitte reported that in the first eight months of 2019, U.S. imports from China were down 12.7%. In the same period, imports from Mexico and Vietnam rose.
While in the past, onshoring or nearshoring was considered cost-prohibitive, automation and technology innovations are making it much more accessible.
- Increased Supply Chain Automation
To the previous point, one of the ways that nearshoring is becoming more accessible is through supply chain automation.
Through increased technology, manufacturers can lower production costs, increase output, and decrease vulnerability to health risks.
For instance, some factories are working towards, or have already achieved, lights-out manufacturing, where equipment can run with limited-to-no staff physically present and be monitored remotely.
Through automation technology, machines can even diagnose problems and prevent equipment failures. These innovations are making it more possible than ever to reshore the supply chain.
AI (artificial intelligence) isn’t the only automation technology coming onto the scene. AR (augmented reality) is also becoming more prominent. AR technology is closer than many realize and allows organizations to perform quality control, process orders, increase capacity, and more remotely.
While this automation technology doesn’t replace human staff, it does make it easier for those in the manufacturing department to work remotely and carry on operations even during disruptions.
- Demand Driven Operating Models
Beyond technology alone, many manufacturers are also looking at their supply chain processes. Traditional material requirements planning (MRP) is being traded in for a more efficient and effective model — the demand-driven operating model (DDOM).
This design enables companies to rapidly reconfigure their supply chains and be more agile and responsive to fast-changing trade policies, production changes, and even factory disruptions.
A demand-driven model also helps create contingency plans for mitigating risks and aids manufacturers in staying operational, even in the face of turmoil.
For example, Harvard Business Review reported that in the first few weeks of January 2020, “companies that had mapped their supply chain already knew which parts and raw materials were originating in the Wuhan and Hubei areas and, as a result, could bypass the frantic hunt for information and fast-track their responses.”
By shifting the planning mindset, manufacturers can adapt to market changes much more efficiently.
How Manufacturers Can Adapt
On Thursday, March 26 at 11:30 a.m. (GMT-4), SHEA Global is hosting a live webinar about Business Continuity in Times of Crisis, where we will guide you on best practices to help minimize operational disruptions and limit the overall impact of COVID-19 on your organization and staff.
In this webinar, you will learn:
- Providing secure remote access to business-critical systems to your teams
- Enhancing employee collaboration even in remote work environments
- How to protect your digital assets on the cloud and through back-ups
- How to minimize disruption to your accounts payable and receivables
- Tips on how to best support your employees and customers
Learn more about the webinar and register.
While COVID-19 is a present threat to manufacturers, the solution is to find the long-term practices and technology that can prevent future risks from having the same effect. Through reshoring, automation, demand-driven practices, and more, manufacturers can create more resilient supply chains and organizations that keep them protected into the future.
How is your manufacturer coping with the COVID-19 disruptions? What challenges are you facing and what solutions are you turning to? Share with us on social media. SHEA Global is on Twitter, Facebook, and LinkedIn.
If you are struggling with transitioning your organization to working remotely or need assistance in protecting your assets, we’re here to help. SHEA Global and our partners are offering quick response solutions to help keep our customers operational. Please contact your account manager if you need assistance or give us a call us at +1 (289) 317-1959. In addition, you may also email us at info@sheaglobal.com.