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The reach of coronavirus in the manufacturing sector has been vast. A survey by the National Association of Manufacturers revealed that 78% of manufacturers anticipate a financial impact, 53% foresee a change in operations, and 36% are experiencing disruptions in their supply chains. The Federal Reserve reported that in March production fell 6.3% in the manufacturing sector – the largest drop since 1946. This has everyone asking what the short and long-term impacts look like as major economies around the world seemingly come to a halt to curb the spread of the virus.
Manufacturers everywhere are running into cancellation of exports, delayed payments, and disruptions in logistics. Economist Larry Hu told Bloomberg “The worst is yet to come for exports and supply chain. For the whole year, China’s exports could easily fall 10% or probably more.” Meanwhile the world is grappling with how to deal with supply chain break downs and inventory shortages of critical medical equipment. The US government reportedly has almost depleted it’s emergency stockpile of masks, respirators, gloves, and gowns.
Still — essential companies such as ones producing food, medical supplies, or supporting necessary infrastructure and distribution of supplies are up and running. Leaders of these companies face a whole new realm of challenges as the health of workers and creating and maintaining a safe environment become top concerns.
Manufacturing Best Practices for COVID: Putting Workers First
After a company that manufactures precision metal castings ran into liquidity issues, turnaround expert Ed Bidanset, was retained by the company’s creditor as CRO (Chief Restructuring Officer) in November 2019 to complete an out of court bankruptcy proceeding. During the COVID-19 outbreak, the company was deemed “essential” due to its client base, so it had to stay open.
Even as an experienced executive, Ed could not have fully predicted the storm that COVID-19 would bring just months later, amplified across people, customers, vendors, shop floor, and state and federal agencies. “Employees are very nervous about their health, but they still want to work,” said Ed. “It’s about talking to the employees and making sure everyone feels comfortable. We clean everything at the plant that anyone may touch multiple times a day. We’ve got hand wash stations. We make sure everyone’s at least six feet apart and have gone to two shifts to create more space.”
You Can’t Rely on What You Did in the Past
At times like these, Ed thinks believes it is more important to take care of their employees first. Said Ed “You can’t always rely on what you usually did because right now, the paramount thing is to support the employee.” Ed describes a situation where one employee, concerned for their health and the health of their family, asked for a week off. He told the employee to take the time off–no questions asked.
Since everything is in flux, Ed’s trying to do things practically, rather than by the book. “We’re trying to be sensitive and we’re trying to respond to needs” says Ed.
Another way to ease concerns was a moratorium on temporary workers, since it raised concerns among the current employees. “We’ve decided no more temps,” said Ed. “The biggest thing is the unknown. We know the “petri dish” here with the people we have.”
Small and middle market businesses have always had to be quick on their feet to solve problems. But even the most experienced owners and managers have been caught flat footed by the coronavirus shutdown.
Some of the other challenges Ed’s faced, he’s had to improvise to find a solution. For example, he had to complete healthcare renewals via Zoom, manage legal and accounting requirements, and build up at least two weeks of cash for payroll in the event someone tests positive for COVID-19 and the facility has to be shut down for an extended period of time. Ed describes fighting fires not just by the day, but by the minute.
Supply Chain Turned Upside Down — It Works
While the company purchased two- or three- months’ worth of mask supplies, at one point the company was close to being depleted of masks and Ed found it a struggle to identify vendors online with inventory to buy more from. “Finally, it dawned on me – let me go to my customers and ask them for help,” he said. “Within three hours, I had 1,200 masks that got shipped in.”
This need to act on the fly has emerged in more than one area of the business. Many subcontractors have temporarily closed their doors, which has led to problems in the supply chain. Ed says in some cases they had ask some customers to pay cash in advance because it’s the only way he will be able to pay their vendors.
“We’ve had employee issues, customer issues, vendor issues, shop floor issues, state and federal agency issues, banking issues,” said Ed. “It’s been about, how do we keep the wheels on and how do we keep operating? Everyone has something they would like or want to have, right now we are asking everyone–what do you need?”
Other areas of the business that would normally face scrutiny have moved to the back burner—for now. Ed says they are not currently worrying about returned goods or RMAS (return merchandise authorization). As prices were dropping in the scrap metal market, the scrap dealer asked Ed what they wanted to do, and Ed said to keep picking up scrap because they had to make room on the factory floor to keep the operation running.
The Future of the Global Supply Chain: Where We Go From Here
The question on everyone’s mind is what the post-coronavirus “new normal” looks like. Ed envisions worker safety protocols emerging from this, similar to the way 9/11 led to changes in airline safety protocols. Increased cleaning standards, scanning employees to check temperatures or making sure everyone is wearing masks throughout the building could end up becoming commonplace.
RED Team executive and Interim COO, Mike Bartikoski, is running operations for a food manufacturing company and says COVID will increasingly push innovation while forcing companies to make tough choices. He foresees changes especially with companies that rely on an exclusively offshore supply chain and more operations brought back to the US. Reshoring will especially occur among essential suppliers, including medical support and supplies.
But what happens if, as some experts predict, we get a second or third wave of coronavirus? What if an even worse pandemic comes along? Can we really afford to lock the entire economy down for an extended period? Systemic changes are needed to ensure better disease tracking. This in turn will inform more data-driven, strategic responses. The good news is, many of the technology tools we already have can be used.
“We have to be smarter about tracking a virus so we can pinpoint it and respond to it quicker,” said Ed. “Now, it’s going to be to assure safety. We’re going to have to build some of these types of technology into certain high-risk areas and into the virus scenario.” Ed feels companies are going to have to enable more employees remote access to plant climate controls, maintenance, equipment monitoring, security, etc. in case they are unable to work on-site. As well, companies will need to have the capability to disinfect and clean (i.e. blue light) on-site, raw materials and supplies that come in from outside vendors.
The “New Normal” Workplace
Mike Bartikoski predicts growth areas will emerge in sanitation and cleaning. Employees will not want to work in overcrowded workspaces going forward, which could prompt new solutions in social spaces. People will come to accept automation and cobots (collaborative robots that work in close proximity to people) in more work spaces. Work from home will be much more popular, and for more established companies with large workforces, they may choose not to hire back to pre-COVID numbers.
Even with these shifts, long term, Mike says especially in manufacturing, there will be a war for talent, where retaining good talent will be key to a company’s success. Hard choices and losses will be inevitable in the near-term but focusing on the human core, to preserve service and loyalty will be essential for successful companies.
Mike predicts things will continue to slow for six to eight weeks before demand bounces back. The ones that survive will know and preserve what is core to the business. Many larger organizations with competing divisions may choose to wind down or reduce output dramatically for areas outside their core industry. As well, the economy will weed out the least efficient operators in the hospitality, airlines, and cruise industries. For others, success will rely on diversification and the ability to pivot their operations. For example, a large restaurant company may need to focus on its carryout business and partner with a packaging vendor or supplier to ensure their take-out and carryout food is safe.
Once governments give the okay for nonessential businesses to reopen, Ed anticipates a slow, sporadic recovery, where investors take strategic measures to hedge against uncertainty.
Crisis Management Experts to Keep Your Business Afloat
Despite the challenges millions of business owners and investors face, an unexpected benefit of COVID-19 is that many change initiatives on the backburner are coming to the fore as essential. New opportunities will emerge from the coronavirus crisis. Mike Bartikoski says the silver lining is to “never waste a good crisis.” Taking key actions now can keep your business afloat and position it to be stronger than before.
InterimExecs RED Team executives jump into action to work with businesses preparing for the future. By kicking off with a 60-Minute Crisis Consult, companies can leverage objective expertise to explore topics like:
- Opportunities for investment in growth areas
- Review of the investment portfolio to assess what to keep, what to sell, what to consolidate
- Evaluation of products to determine what’s core and what has the strength to recover fastest
- Cash flow and business survival projections
- When to ramp up spending
- Planning for the new normal and planning for future black swans
For companies facing crisis or zero revenue, no single approach is best for all. The bottom line is that things will change, and our globalized supply chain may look radically different months and years from now. The businesses that have a clear and actionable roadmap, based on their unique situation, are the ones that will survive.
Executives who specialize in turnaround and crisis management are the ideal resource for businesses that need help navigating the unknown.
“If a company brings in a turnaround person, this truly needs to be someone who has the bottom up knowledge, who has been in and worked through a turnaround,” said Ed. “This means getting to know the people, the culture, the contacts, the nuances, because you’re going to have to bring that back to life. You’re going to have to sit down and say, ‘This is what you want. But what do you need to get back to work?’”
Extraordinary times call for extraordinary leadership: InterimExecs RED Team is an elite group of CEOs, CFOs, and CIOs who help organizations through turnaround, growth (merger, acquisitions, ERP/CRM implementation, process improvement), or absence of leadership. Learn more about InterimExecs RED Team at www.interimexecs.com/red-team or call +1 (847) 849-2800.
More Resources:
*Surviving Zero Revenue: Thoughts from a Turnaround CEO
*Turnaround Professionals Decide and Implement Strategy for Troubled Companies
*Strategy Focused CEOs See Growth and Opportunity Even in Crisis