Collin Ziemerink, EVP industrial manufacturing & services at Maine Pointe, in a recent paper examined how coronavirus is hammering the manufacturing industry and what can be done to weather the storm.
Covid-19 has had significant impact on production, with manufacturing and shipping firms reevaluating their strategies and scrambling to keep up production. The manufacturing industry is forecasting major shortfalls, deriving from an inability to get raw materials and intermediate goods from China. Meanwhile, many cargo vessel sailings have been canceled, consequently disrupting truck freight.
Metal fabrication, electronics components, transportation, and oil & gas have already taken particular hits. Oil prices, for example, have collapsed to $20 because of reduced demand and actions taken by Saudi Arabia and Russia.
Manufacturers and shippers were already reeling from tariff and trade battles between the US and China, and the Covid-19 pandemic has piled on yet more adversity.
Though ocean cargo and air freight was impacted by coronavirus immediately, trucking will be hit when cargo from air and sea arrives at ports in lower volumes. Over-the-road and intermodal freight was already weakened by the trade war and a nationwide labor shortage, according to Ziemerink.
The second quarter will see more serious shortages as industry stockpiles deplete. Even when Chinese factories resume, there will be delays for the foreseeable future, with enhanced screenings at ports of entry and hygiene compliance measures slowing the process.
To mitigate disruptions, Ziemerink recommends effectively building resilience into supply chains. However, nearly 40% of firms lack a supply chain risk management program, leaving them exposed without a contingency plan.
Ziemerink says that Maine Pointe’s Total Value Optimization (TVO) approach – which optimizes value creation and improves operational transparency and visibility – can build resilience into supply chains and mitigate future risk.
The best case scenario would involve already having put in place a contingency plan for such a “force majeure.” But firms that are scrambling can still do something. “Most importantly, companies will need to be able to pivot quickly and put options in place immediately to prepare for a prolonged slowdown and to spread the risk. At the same time companies are putting those options in place, they should be preparing for the future. This is certainly not the last time an unexpected disruption will cause such widespread supply chain upheavals, and the best time to prepare for the future is while the need for risk prevention is still top of mind,” Ziemerink said.
The immediate implementation of a risk strategy for manufacturing firms should prioritize the inclusion of a high degree of visibility into the end-to-end supply chain, according to Ziemerink.