How crisis will foster the transition of manufacturing companies
The COVID-19 pandemic has led to the most severe crisis of mankind after the second world war. Society and especially the manufacturing industries have been hit hard by the closing of borders and national lockdowns. This has caused the disruption of supply chains and in return the closing of factories. Most of the industries were not prepared for this and had to learn quickly to rethink their existing supply chains and build new ones from scratch.
Increased investments in digital transformation as a consequence of the pandemic
Research¹ shows, that despite companies that have not invested to save on cash, more than half of the companies participating in the survey have increased their budgets for digital transformation. They have accelerated the digitization of customer and supply chain interactions related to their internal operations by 3 to 4 years. This has not only included investments in remote collaboration technologies to allow the work of non-critical employees from home, but also in robotics, wearables allowing for safe distancing on the shop floor or digital logistics control towers. The pandemic has forced manufacturing companies to implement digital solutions to gain the missing transparency about their supply chains, but also to compensate for the shortage of labor during the pandemic.
Robots support the process of reshoring, i.e. to move production from offshore locations providing cheap labor back to the industrialized countries where labor is replaced by robots. Low interest rates for investments are supporting this process.
Reshoring is one instrument to reduce uncertainty stemming from the pandemic when it comes to the maintenance of global supply chains. This process will be continuing since uncertainty will prevail given the climate change and the increasing number of natural catastrophes globally.
Despite the crisis, leading companies have accelerated the digitization of customer and supply chain interactions related to their internal operations and new supply chain models help to bridge supply chain gaps.
Industry leaders see the digital transformation also as an opportunity to grow and attain competitive advantage in the crisis or at least set the base to do so after the crisis. This focus is replacing the re-pandemic attitude by most companies to see digital transformation mostly as a means to reduce operational costs. The digital strategy will become an integral part of the overall corporate strategy since also the customers are demanding more digital collaboration and interaction caused by the crisis. The crisis is an accelerator of the digitization of processes and interactions. Manufacturing companies need to become data-driven in order to maintain control of their manufacturing ecosystem.
Crisis will reinforce new sourcing models
COVID-19 induced disrupted supply chains have led to material and component shortages. New technologies such as additive manufacturing have helped to bridge the supply gap by insourcing of part manufacturing. Data analytics and machine learning are the base for new procurement platforms such as Manufacturing as a Service (MaaS). The idea behind this is not to order directly at a (longstanding) supplier but to use a platform such as 3D Hubs (Netherlands) or Xometry (US) to upload material specifications and a CAD file of the part to the platform, that will automatically match them with suppliers established at the platform. In order to provide a high level of quality, the platform operators make sure that all suppliers wishing to be listed on the platform execute trial orders before they are approved. Furthermore, the operators regularly check the suppliers´ manufacturing sites as well as their quality management processes. Target is to onboard a substantial number of suppliers and to provide OEMs with a maximum choice of suppliers.
Large manufacturing companies such as ABB, Audi and BMW have already used these services. In times of COVID-19, these platforms have contributed to close supply chain gaps as the set of suppliers also include local and midsized ones. Lengthy search activities for suppliers become obsolete. The platforms can also provide recommendations concerning alternative production methodologies based on the data collected over the years.
The increase in digital collaboration, process management and evolving new business model will prevail after the crisis. There will be no way back, even if 90% of the people will act as before the crisis². Technology alone will not assure business success.
Digitization and increased virtual collaboration will set new requirements toward the way we manage people and teams e.g. to create proximity between people although there is no physical presence. We need to make sure that we take the people with us on this journey. Learning will be more important than ever: learn continuously, unlearn or forget about things and learn new things.
- McKinsey 2020
- Roland Berger Strategy Consultants 2020