An Age of Prolonged Recovery: Re-Imagining the Advanced Industrials Sector

For companies in advanced industries, the impact of Covid-19 has been wide-reaching and devastating. Organizations across the automotive, aerospace and electronics sectors are still struggling to navigate through the plummeting demand, supply chain bottlenecks and plant closures caused by the global pandemic.

Even once the current crisis has eventually subsided, the complexity of their multi-layered supply chains, employee-dense workplaces and extensive global footprints means that reverberations will be felt for some time. Restarting production facilities can be more challenging than shutting them down, and many industrials will likely face continued downward pressure on demand, production and revenues amidst the impending economic recession.

For some organizations, planning for recovery from this pandemic will involve not just a return to their pre-Covid-19 position, but a complete reimagination of their entire operation. As we enter a new era of prolonged recovery, we look at key areas that can help address the near-term challenges and long-term implications of Covid-19.

PART I: WORKPLACE SAFETY

Social distancing measures have disrupted operations in worker-dense manufacturing plants and warehouses, forcing leaders to try and balance business continuity with health and safety concerns for their employees. This will be no different as we move out of lockdown and start to scale up production. Until the coronavirus can be better managed with improved medical care and vaccinations, one poorly managed case could immobilize the entire unit. When resuming operations, process plants may wish to consider a number of initiatives:

• Health monitoring: Companies are already creating wearable devices that will allow organizations to monitor their workers remotely and control the Covid-19 outbreak in their workplace by logging their health status in real-time. Factories in China are also carrying out daily body checks on entrance to the workplace to screen for potential infections.
• Modified workspaces: To enable workers to maintain social distancing measures for an extended period of time, the workplace may need to redesigned to ensure they are well spaced and movement flow is maintained throughout the plant.
• A phased return: In China, manufacturers have introduced a phased approach to resuming operations, with 20 per cent of employees returning to the workplace every two weeks. This approach, and the splitting of shifts to minimize employee contact, could mitigate the risk of resurgence.
• Enhanced sanitation: Employers will need to permanently introduce more hygienic products in the workplace, including hand washing stations, facial tissues and flu masks, while shared equipment must be sanitized between uses. This will help curb the spread of any future infections.

The specific measures will vary by role, location, and company, but engaging employees and managing their concerns regarding the risk of virus infections in the workplace will be a fundamental part of ongoing workplace safety post-pandemic.

PART II: BUILD RESILIENCE IN OPERATIONS AND THE SUPPLY CHAIN

Traditional supply chains are often optimized for cost and are not always equipped to cope with unplanned disruptions. Covid-19 has driven home the disadvantages of a system that requires all of its elements to work ‘just in time’, and industrials are likely to have to make fundamental changes to their supply chains to improve their resilience. There are two key areas that organizations can focus on to address resiliency issues.

1. Improve contingency planning

Many organizations will need to fill gaps in their contingency plans, which failed to consider widespread quarantines, extended school closures and travel restrictions. Industrials may want to consider strategies to address some of the persistent issues affecting the sector to avoid the next crisis. This may include identifying internal and external risks, scenario testing, stress testing the P&L, balance sheets and cashflows, and establishing a portfolio of interventions. If a vendor has gone bankrupt, who will replace them? Will demand return to a normal baseline, or will there be waves of large-scale buying? It’s impossible to predict how consumers will behave moving forward, but improving contingency plans will go some way to mitigating supply shock.

2. Enhance forecasting efforts

We expect industrials to place greater emphasis on forecasting efforts to help them improve reaction times and response to black swan events. Organizations should focus on building intelligence-based capabilities to help them prepare for, sense and respond to future events. This may include adopting digital and analytical tools for predictive monitoring, and supply and demand matching.

It’s clear that few supply chains were prepared enough for what the world is experiencing today. How we use the power of technology to even better forecast and make decisions on future trends will be a critical differentiator for the organizations of tomorrow.

PART III: ADDRESS NEAR-TERM CASH MANAGEMENT CHALLENGES

Like millions of companies worldwide, industrials may experience cash-flow challenges and difficulties in managing debit obligations. Covid-19 is continuing to increase expenses and capital costs while concurrently forcing customers to suspend purchases.

Now is the time for organizations to stress test all their incoming and outgoing cash flows by modeling worst-case scenarios and downsides. Implement immediate mandates to reduce spending, and act quickly; speed is essential and initiatives can be temporary, such as introducing a hiring freeze, renegotiating agreements with suppliers, and reviewing external spending.

Some stressed organizations may need to readdress their short and medium-term banking facilities or approach their lenders to provide immediate financing and liquidity. Importantly, businesses should take the opportunity to put new practices in place today that could deliver sustained cost and yield big returns once the environment stabilizes.

PART IIII: LOOK TO INDUSTRY 4.0

Covid-19 is fast-tracking innovations in the tech sector, including the adoption of digitally-connected Internet of Things (IoT) equipment and software to boost efficiency and profitability. Rather than putting digital initiatives on hold until the pandemic subsides, now is the time for organizations to proactively deploy automation technologies to reshape their business: particularly innovations that reduce worker density and increase real-time visibility.

• Predictive analytics and AI: Decision makers often struggle to predict consumer demand, particularly in unprecedented circumstances like Covid-19. AI can help by identifying patterns and predicting what will happen next by capturing and aggregating data from a variety of sources.
• Augmented and virtual reality: AR and VR have huge applications in delivering immersive learning content and enabling manufacturers to deliver training to employees who are unable to attend in-person due to social distancing.
• 3D printing: 3D printing can make manufacturing faster and more responsive to changing demand; this is particularly relevant in supply chains that are exposed to single-point failure.
• Digital twins: As we emerge from the current pandemic, we expect to see more organizations using digital twins of their supply chain to predict outcomes with different variables, to prepare for unexpected disruption and build an intelligent ecosystem.
• Robotic process automation (RPA): RPA was proven to deliver efficiency and accuracy long before Covid-19, and will be even more critical in supporting labor intensive activities during social distancing measures.

Many of these technologies were seen as a ‘nice to have’ by large industrials prior to the pandemic, and hadn’t yet seen mainstream adoption. Over the longer term, leaders can look to Industry 4.0 as a catalyst for change to reduce costs and better weather future storms.

UNPRECENTED TIMES

We expect to see an extended and significant period of reform in this sector as a response to Covid-19, specifically focused on building resilience in operations and the supply chain. With the pandemic exposing the global dependencies of most industrial organizations, local-to-local supply chains may provide the flexibility needed to minimize risk of this level of disruption happening again. The coronavirus will also shift how people fundamentally live and work globally, causing challenges for leaders when balancing business continuity with health and safety.

In such unprecedented times, we don’t know exactly what the re-imagined sector will look like. However, those organizations that focus on workplace safety, identifying and repairing weaknesses in their finance and contingency plans, and using technology to improve forecasting efforts, will emerge even stronger than their pre-Covid-19 position.