Contrarian COVID-19 Advice for Manufacturers
The novel coronavirus which causes the disease called COVID-19, the outbreak of which the WHO has elevated to a pandemic is affecting every single aspect of life in both developed and undeveloped nations. Whether the economic fallout of the pandemic is widespread regional recessions, a global recession, or even results in depression, manufacturing, and asset-intensive industries are going to face a challenging future when the world stabilizes, according to the National Association of Manufacturers.
Note that I did not say return to normal, as the past “normal” is not going to return, at least any time soon. Industry pundits, the media, and much of the vendor community are using the COVID-19 pandemic to drive hype about adopting AI, AR/VR, and radically changing manufacturing. Here is the contrarian perspective of a new normal based on an altered workforce, a constrained economy, massive government debt, and weakened supply chains.
First: Do No Harm
The stock market is not relevant right now. The whipsawing is the result of uncertainty and the propensity to gamble and make a fast buck by betting. The reality is uncertainty is going to be a condition business must live with for the near and mid-term. Forget about the stock price as a business success measure. Focus on keeping the company alive, profits, and share price be damned. That means your first obligation is to treat customers and employees fairly. Of course, this means acting rationally because if you do fold, you can’t fulfill that obligation. Companies that price gouge, use excess cash to repurchase shares instead of supporting their workforce, excessively compensate executives while laying off workers (especially if getting government bailouts) or use the crisis to stiff suppliers will ultimately pay the price. The market will remember.
Recognize that if you are continuing to operate during the crisis that medical systems will face increased demands during the virus response. Keep your workers safer than ever. An industrial injury may not mean a simple trip to the ER for stitches since the ER’s may be closed. Consider implementing first aid training immediately if your business has these types of risks. This example is but one way of how you may need to rethink your operating risks. It is not going to be business as usual.
Second: Assess the Risks and Opportunities
There will be a lot of advice about how technology is going to help you during this crisis. Market hype will say you must invest in technologies that can help you survive the pandemic like better software or new hardware that requires less labor. Manufacturers are being bombarded with messages about how AR/VR, AI, and analytics are going to solve your problems and make you less susceptible to pandemics in the future.
Your problems may be far more immediate. In many industries, the most experienced and skilled operators and maintenance staff will also be the oldest and most vulnerable. They likely will fall victim to COVID-19 or have to self-isolate longer and be the last to return to the workforce. No amount of remote visualization tools will replace skilled hands, at least in the short term and in an affordable way. Now is the time for sober risk assessment. Understand where your vulnerabilities are; supply chain, skilled labor, reliability, whatever.
What advantages do you have? Now is the time to reassess what tools you already have in your portfolio. Past investments that have been slow to roll out due to uncertain economics may need revaluating considering the current situation. If cash flow permits, this might be an excellent time to up maintenance activities or to refurbish idled lines.
Third: Adapt for the Immediate and Near-Term
LVMH, the French luxury goods conglomerate, provides an excellent example of this behavior. Luxury perfumes are not relevant in times like these, so LVMH is shifting production from Givenchy, Christian Dior, and other brands to making alcohol gel sanitizers. Companies making disinfectant wipes and chemicals are also adapting. To ramp up production of bleach, a powerful disinfectant, Clorox is focusing on the easiest products to mass-produce and reducing setup times by not making many different scents. During the quarantine phase of the pandemic, incomes will be reduced, and spending will be tightly constrained. Focus on the most cost-effective products in your portfolio. Simplify packaging to reduce costs. Work with distributors to get products into consumers’ hands even if it means forsaking exclusive opportunities.
Once the recovery begins, adjust to a new reality. While there will be some pent-up demand buying, expect it to be limited.
Plan on new buying behaviors. With much-reduced incomes as consumers focus on deferred obligations like mortgages and other liabilities like deferred utility bills, they will be more cost-conscious. They will likely be living on a day-to-day basis and buying smaller quantities but more frequently. Major purchases will be deferred or adjusted. One possible example of this could be a shift from high-end vehicles with luxury options to more basic transportation with lower operating costs in the auto sector. Whatever the market that evolves looks like, it will not be the same as it was in January 2020.
It is time to focus on the ability to manufacture at a lower cost and to increase your ability to be more flexible to what will be an evolving demand curve. Focus marketing not on upselling to a more expensive product but on how to maximize the value of your products best. Recognize that people will have adjusted their behavior, and a return to pre-COVID-19 routines may take a long time and may never be the same. Hence agility will be critical.
Fourth: The Long Term
As markets stabilize and the new normal evolves, whatever it may be, then you can return to looking for long term investments in technology that you may have been exploring earlier. It will then be the time to consider big digital transformation projects. There will likely be a younger workforce as a result of the apparent age-related severity of COVID-19. They will have different expectations, and they will have different skill sets. Supply chains will change as a result of the learnings from this pandemic. A lot about a business will change, and technology can help enterprises to adapt to those changes. But balance the investment in those kinds of technology investments with something else.
Businesses must rethink their role vis-à-vis society.
Instead of lobbying the government for tax cuts or trying to lighten reasonable regulation to improve profitability at the cost of endangering the environment or worker or consumer safety, it needs to start to lobbying the government to respond to the basics. When I was in the software industry in Seattle a couple of decades ago, there was a dramatic shift of programming sites from the US to Canada as software businesses started to expand rapidly. The reason was not just that the $CDN was slightly cheaper than the $US. It was that healthcare costs in Canada were so much less that it made sense to have programmers there. Affordable universal healthcare is in the business’s best interest. Manufacturers in Europe know this. Rather than lobbying for tariffs to protect your business, lobby for healthcare to put you on a more level footing. The same goes for consistent sick leave policies, minimum wages, public education, and much more. If these are federally mandated and equitable on a national and to a degree, global scale business will benefit. The pandemic offers businesses a chance to reset. Those that use this opportunity to reset the way they approach business might just see a better future. Hopefully, the pandemic offers a lesson that there is more to being a successful economy than a $30,000 DJIA.
Final Note – get more specific advice
Every company, every industry, and every geography is likely to have unique aspects to their challenges and opportunities. As part of The Analyst Syndicate, I am committed to providing my insight to you. Like many of those reading this, my travel will be minimal for the next 6-8 weeks. So, I will have plenty of time to do complimentary initial assessment calls. Book a call on www.thansyn.com on my profile page or directly on Calendly.