To someone looking at the manufacturing industry from the outside things must seem pretty grim.
The impact of the COVID-19 pandemic on manufacturing has been severe and even now, as lockdown orders begin to be rescinded and workers begin to return to plants, the commercial context will remain difficult and uncertain for quite some time.
Take auto manufacturers, for example.
There is enormous uncertainty as to how quickly demand for new vehicles will rebound and what segment of the market will bounce back first. In Europe, for example, around 50% of the automotive market is fleet sales. In the short term businesses are suffering and unlikely to be contemplating investing in their auto fleets. However, companies will continue to lease vehicles for their employees, and likely take into account the evolution of demand towards greater flexibility in the type of vehicles they wish to lease according to their specific uses, and the transition towards more environmentally friendly vehicles. It is to be expected that these developments will accelerate as we emerge from the Covid 19 crisis.
Will increased environmental awareness push electric vehicles forward, or will it be LNG and hybrids that lead the way? Will vehicle sharing schemes gain a foothold in our new social reality, or will sharing schemes fall apart as hygiene restrictions make the business model hard to sustain?
Questions abound, and dealing with all of this unprecedented uncertainty and its associated complexity represents a real challenge for manufacturers as they consider how to start their factories and operations once again.
And the auto manufacturers are not alone.
Manufacturers across Europe and the world in all industries have shuttered factories as more than 4 billion people lock themselves down. The consumer spending that is critical for driving demand has dried up and manufacturers are facing very real cash flow problems that only worsen as every new day of lockdown passes.
Yet despite these dark clouds hanging over the industry, there is more than a little light breaking through.
Indeed, the manufacturers that Cosmo Tech is talking to, and the feedback we are hearing from industry analysts, are both clear on this point: manufacturing is going to come back and it is going to be strong and more resilient.
The production plants and corporate boardrooms might be empty but there is an enormous amount of work going on away from the office in the manufacturing sector right now.
Long present among the leaders in pursuing digital transformation, manufacturers are now adapting to this time of crisis by pursuing something different: optimization.
For manufacturers, getting back up to speed will involve optimizing costs and tackling hard savings today so that they can rebound with the capacity to restart production a little bit leaner tomorrow. Corporate planners and operations managers alike are seeking out initiatives and technologies that will have a fast and tangible impact on the cost structures of their manufacturing plants.
For the moment, the decade-long visionary transformational programs will be on hold, replaced by the fast adoption of technologies that offer quick wins and next-quarter value creation.
Manufacturers will also be rethinking their inventories and supply chains, especially in light of the global impacts of their virus on international trade.
The key inventory questions will be around the crucial balance between stocks on hand and the cash that’s needed to get that stock on hand: spend too much and inventory could sit around for months, spend too little and a restart program could be doomed before it begins.
These manufacturers need tangible action plans to rebuild their supply chains and meet still-uncertain customer demand. It’s critical that these plans are robust – this is what will give a company the capacity to adapt to the present reality, and make optimal decisions to get back on track fast.
So, how will decision makers know what choice to make? Simulation.
While few manufacturers saw the COVID-19 pandemic coming, all will need to find a resilient way forward when it has passed.
Now is the time when the industry’s strategic and operational models will be tested, and the levers that allow firms to lower their costs while also accelerating their return to full strength are identified. The companies that succeed in doing this will be the ones that assess a variety of scenarios and balance them against the constraints and demands of a still uncertain future.
The most successful manufacturers will have optimal mid- and long-term plans that are both robust and resilient to future shocks and the cascading effects of a crisis like COVID-19, and that’s something we know well at Cosmo Tech. Modeling, simulation, and testing scenarios against each other is what we do. Our Enterprise Digital Twins solutions are already helping manufacturers to identify the levers they can use to optimize their operations, and offering them clear, explainable, justifiable, and resilient plans for moving out of the crisis and into recovery. Thanks to our software these manufacturers can redesign robust processes, rebuild their operations, and adopt resilient long-term strategic plans.
Leaner. Sustainable. And Stronger.
The manufacturing industry that emerges from the crisis won’t be the same one that entered it.
It will be leaner, optimized with an eye on future transformation, and prepared to restart production with a plan to negotiate reduced and uncertain demand, economic instability, and cashflow insecurity.
There’s a good chance it will be more sustainable, too. By adopting strategies that are more resilient to unexpected events manufacturers will be building more sustainable businesses and contributing to more sustainable supply chains.
And personally, I think it will be a stronger industry, as well, especially companies that are forward thinking enough to embrace the tools that help them to anticipate problems before they emerge and mitigate those strategic and operational risks.
In a 1957 speech President Dwight D. Eisenhower remarked that, as a US Army General, he had learnt the value of planning.
“In preparing for battle,” he said, “I have always found that plans are worthless, but planning is indispensable. If you haven’t been planning you can’t start to work.”
His words ring true sixty years later, and the proof will be found as automakers and the rest of the manufacturing industry find their forward again in the post-crisis era.