Since the dawn of the industrial revolution, manufacturing industries have been the backbone of the world economy. Things get designed and manufactured, then get sold to consumers. Money flows in the opposite direction, holding up the economy.
In times of crisis, there’s a desire to return to grass roots – discipline, resilience, consuming what one needs, and no more than that.
What is the anatomy of a resilient manufacturer? In all its simplicity, a manufacturer’s resilience comprises of three primary aspects – Business Model Resilience, Supply Chain Resilience, and Demand Forecasting Resilience.
1.) Business model resilience
All manufacturing businesses are expected to experience the bullwhip effect to varying degrees, and their inventory management (both raw material and finished goods) will have to absorb the disruptions of high supply / low demand (for discretionary items) and insufficient supply / very high demand (eg. toilet paper). As the economy normalizes, the effect of the bullwhip will also gradually wear down.
Meanwhile, those manufacturers who have tooled up for real time synchronization between inventory, production, and demand will ride out the disruption smoother than those who have not.
The desire for business model resilience will also prompt manufacturers to look very carefully at planned capital expenditure, with a view to postponing all non-critical expenses. If it is possible for manufacturers to acquire the use of a machine, rather than the machine itself, through a product-as-a-service model, many will choose to do so.
Similar considerations will be applied on the demand side. In recent years, a company selling compressors reinvented itself to selling compressed air per cubic volume. This had dramatic effects on their financial outcomes, allowing them to price their offerings closer to consumer benefit.
2.) Diversification of supply chain / vendors/ geographies
Most manufacturing businesses are based on economies of scale. Supply chain vendor contracts are therefore often drawn up to reflect volume pricing advantages contingent on minimum order sizes.
The relationships between manufacturers and suppliers span multiple years and are subject to intense annual contract negotiation. This has resulted in manufacturers relying on a handful of reliable suppliers for each commodity they source.
Unfortunately, in a pandemic situation, such contracts do not help much. Manufacturers may find their favorite suppliers’ production disrupted, or unable to deliver. It makes sense to build resilience into a manufacturing supply chain by diversifying suppliers, and conducting quality audits ahead of time, so that they can be brought into play in times of contingency.
Ideally the diversification would include geographic diversification, and considerations around import/export duties, international taxation, etc – would be included in business continuity planning, with Plan B ready to launch when needed.
3. Demand forecasting using customer pulse
Arguably the biggest contributor to non-resilience in a manufacturing business model is demand forecasting. In the ‘old normal’, CRM projections served as proxy to forecasting demand, and was the best source of information available to a manufacturer on customer orders.
Unfortunately, today manufacturers find themselves in a position where their CRM information is not a true reflection of customer sentiment and cannot be used to forecast demand.
What manufacturers need is a way to check their customers’ pulse and sentiment, while reinforcing their relationship with trust and sensitivity. Conducted monthly, this pulse data will allow manufacturers to obtain a means to forecasting demand that is more credible than most other sources.
The new normal
Humanity is under great stress today – from the economic down to the individual level, we are experiencing change that we never have before. I am reminded of a caterpillar struggling in a cocoon – it does not know its future, or why it is experiencing pain. All it knows is to trust that the pain has purpose, and that the pain will bring it to a stronger future.
The pain we are all undergoing together is transformational in its ability to effect change. If the old ways don’t work anymore, it is time for a new normal. A future of strength through community, a future of resilience.
