Many manufacturers have been considered essential businesses during stay-at-home orders and have continued to operate, but as the economy starts to re-open more broadly, there are still plenty of factors to consider. Manufacturing companies must continue to thoughtfully prioritize employee safety while also ensuring financial health. Meanwhile, business leaders within the sector indicate that there will be even more focus on continuous improvement for the shop floor, navigating disrupted supply chains and new thinking about customer acquisition.
For a more exhaustive list of actions that applies to businesses of all industries, download the 7 Actions Businesses Need to Take Now white paper. There are also other resources specific to manufacturing including a virtual event on Building Resilience in the Manufacturing Sector and the latest Report on Manufacturer’s Priorities, Goals and Projections for 2020.
Assess the Business Model, Evaluate Your Supply Chain
Companies across every industry are evaluating the state of their business, determining what’s working, what’s not and looking for areas of opportunity.
For manufacturing businesses, COVID-19 put a brighter spotlight on shortcomings in supply chain management—many of these existed before and were further exacerbated during the global tariff wars over the past couple of years. Manufacturers must audit their supply chain for risk. That audit must include every vendor and supplier, the way inventory is managed and ecommerce capabilities, not only to eliminate inefficiencies but to prepare the business for what’s ahead.
Financial Health Check: Focus on Suppliers
Mandatory closings for non-essential businesses have wreaked havoc on many manufacturers, forcing furloughs and decimating demand, while supply chain disruptions have made life difficult even for those allowed to remain open. Every business leader is keeping a close eye on cash, and suppliers are a key place for manufacturers to focus cash flow efforts.
If they haven’t already, manufacturers need to spend time evaluating vendors and looking into strategic sourcing, particularly if they are in single or sole sourcing positions. Many manufacturers are looking into secondary and even tertiary suppliers to avoid future supply chain hiccups, but with the added burden of finding suppliers that are both cost-efficient and reliable.
“Supply chain redundancy techniques are effective in maintaining efficiency and keeping your most vital items moving but come at a cost. Make sure to only use them at the most critical points of your supply chain,” said Gavin Davidson, product marketing director at NetSuite with 35 years working in the manufacturing sector. “You need to weigh the risks and costs of those new suppliers and model multiple scenarios of their budget impact.”
To prioritize which areas to find backup supply, start by reviewing the bill of materials to identify critical points of supply and find alternative sources for those at highest risk.
“Manufacturers should look to identify the top 3-6 suppliers that make up the largest portion of their spend and then evaluate and mitigate any risk involved in maintaining those suppliers as single or sole sources,” said Matt Wisner, industry principal for NetSuite’s Manufacturing Center of Excellence. “One mitigation strategy many manufacturing firms are now evaluating is vertically integrating these suppliers by adding the capability to their operations or even looking at a possible acquisition.”
Instituting a contingency plan will reduce the risk of scrambling to find additional suppliers, many of which will be unable to fulfill your orders during the next supply chain disruption. These plans should include factoring in the timeliness of communication, ability to monitor inventory levels and flexibility of logistics for each supplier.
Manufacturers should also take a hard look at inventory management strategies, closely tracking key performance indicators around inventory, particularly fill rate, as many manufacturers were caught unable to meet demand from stock on hand. Many manufacturers are stocking up and keeping more inventory on hand than they have historically in response.
“We’re building up inventory right now for all of our products and making sure that when demand hits, we’re there,” said Bill Robbins, President and Founder of RubberForm Recycled Products.
On the other hand, some manufacturers had been looking at moving beyond just-in-time manufacturing to on-demand manufacturing, especially in markets that can be served with 3D printing. “While that may seem like a subtle shift, we think part of what is happening is companies are thinking, ‘If I could put this within proximity of a cluster of customers, I save on shipping, logistics, distribution and other supply chain costs and avoid potential disruptions,’” said Tony Uphoff, President and CEO at Thomas, a publishing company focused on manufacturing. “Companies will start this type of business model transformation once they get technologies like Additive Manufacturing under their belt.”
With either approach, manufacturing executives must take a look at current inventory processes to see if there's a better option than today’s procedures.
For now, “. . . identify fast-moving SKUs and work with suppliers to obtain better pricing for bulk purchases and investigate rebate possibilities to keep cash flow moving,” said NetSuite’s Davidson. This will ensure manufacturers have key inventory on hand in the future but also ensure the business isn’t cash poor as a result.
Plan Multiple Scenarios for Supply Chain Disruption
Forecasting in today’s environment is tougher than ever, requiring manufacturing finance leaders to assess cash flow and forecast more frequently to prepare the business for the unexpected and reduce the impact of future surprises.
As disruptions trickle up and down the supply chain, manufacturers must also prepare for bullwhip effects. The number of these swings will increase as demands shift. To wit: many raw material producers slowed down production due to decreased demand, but as non-essential businesses re-open and more manufacturers ramp up production, depleting the supply chain, manufacturers will now have to vie for these materials. Certain types of raw materials, such as plastics and textiles are at a premium right now due to high competition. This makes planning difficult.
Manufacturers must conduct a balancing act of holding enough inventory, so they aren’t facing a depleted supply chain, but not so much that they tie up cash. The global supply chain will take a while to normalize, and the best remedy, outside of a crystal ball, will be getting as much visibility into current and future demand as possible. That’s also going to require modeling multiple scenarios—some of them worst case—around the impact on sales, operational expenses and overall cash flow. Manufacturers should look first at areas that might have an outsized impact, whether it’s a particular customer, supplier or partner as they model these scenarios. Factor in the possibility of fewer employees and even entire shifts due to quarantine requirements.
Customer Retention & Acquisition: Ecommerce is Key
Just like when COVID-19 first started impacting business activity, manufacturers need to remain focused on maintaining customer relationships as they re-open. That includes prioritizing limited inventory for loyal customers that are the most profitable. More than ever, manufacturers need a firm grasp of customer lifetime value and customer acquisition costs.
While most companies are shifting marketing strategies towards customer retention, manufacturers must also reevaluate how they’re interacting with leads and prospects.
According to a NetSuite and ThomasNet survey of manufacturing leaders, 52% see new marketing efforts as a top priority—not far behind containing costs and improving efficiency.
This means reassessing existing sales and marketing messaging to align with customer sentiment. The focus here should be on empathy and how your business is helping both the community (i.e. manufacturing essential supplies) and customers. Many manufacturers are looking at offering more generous payment terms to new and existing customers as a sign of goodwill.
“People don’t want to be sold to, but they want to have a conversation,” Dean-Paul Hart, president of Compac Industries, a Tucker, Ga.-based maker of oral care, home and baby products, said on the recent NetSuite virtual event Building Resilience in the Manufacturing Sector.
Manufacturers should also asses their current digital strategy and explore additional marketing channels to supplement a loss of leads from in-person meetings and tradeshows.
“We’ve been doing tradeshows for years and wrestled back and forth on how important they are and if they have a measurable ROI,” Hart said. “This year, we have the opportunity to take that budget and figure out how to communicate with those people, follow up differently and see how it works.”
For many, ecommerce has quickly become a key area for attracting new customers. According to that NetSuite and ThomasNet survey, 35% of manufacturers are seeing an increase in the amount of ecommerce.
“Channels are changing and it’s about pivoting channels. The way people are buying is changing and to some extent even products are changing,” said Jim Estill, CEO of Danby Appliances.
After stay-at-home orders kept stores closed, manufacturers that did not sell online, particularly through ecommerce or social media, found themselves behind. Today, ecommerce is becoming table stakes for many manufacturers to stay in business to both support existing customers and acquire new ones.
Adapting and Repackaging
Many manufacturers have dealt with the business disruption by adapting production lines to make new products, particularly around personal protective equipment (PPE) and other necessary products. Bedford Industries, a twist tie manufacturer, shifted some of its manufacturing production to face shields. After posting about the new face shield on social media, demand from new customers outside Bedford’s regular customer base took off and Bedford needed a way to capture that demand. After launching a new ecommerce site in just four days, Bedford has sold more products to more customers in more effective ways.
The ecommerce site has not only allowed new customers to connect with Bedford, but existing customers are getting more attention as a result. “It's freed up our sales team to handle the orders that they're used to and handle our regular customers and given us an avenue to get these products to people who really want it,” said Jay Milbrandt, President of Bedford Industries.
Indeed, the current climate has forced manufacturers to rethink how they go to market and deal with existing customers.
“With retailers closing, we immediately noticed a shift in our online business,” Hart said. “We’re going deeper to deliver online and build out our B2C business—that doesn’t mean we want to compete against our retailers. Pricing is a little higher directly on site than to retailers.”
Many manufacturers are accelerating their ecommerce plans, even if just for a subset of products.
“We’re changing the way we go about selling our products,” said Robbins. “We’re updating our website to make it easier to use to maneuver through so people can find us and find the products that we manufacture. That’s something we’ve been struggling with over the years.”
All manufacturers need to reevaluate if it makes sense to sell online, even if they were unable to do so or felt that the initiative was not worth it in the past.
To find the right ecommerce partner, manufacturers should look to a system that can quickly adapt as their business model changes. Since the balance of online and offline sales may be fluid, finding a flexible ecommerce solution is essential to adapting quickly to changes in market conditions and consumer preferences. To create the best customer experience, the ecommerce system should be compatible with existing systems, with data flowing seamlessly across ecommerce, CRM, inventory, shipping and financial systems. This will give customers real-time information on things like product availability, stockouts and shipping status, which is essential to set their expectations in today’s climate and beyond.
Put a Control Plan in Place for Health and Safety
The CDC recommends manufacturing companies create a COVID-19 assessment and control plan for their facilities. These guidelines may mean manufacturers need to alter employee schedules, the layout of the shop floor and continuously monitor social distancing.
First, manufacturers need to determine how many employees can safely work in the building at one time. Do you need to reduce the number of people working each shift? Does this mean adding new shifts? Some manufacturers are separating employees into dedicated shifts. If a worker on shift 1 gets sick, shift 2 won’t be affected and will still be able to work while shift 1 is quarantining. Staggering arrival, departure and break times to discourage congregations of people is also recommended.
After determining the number of workers, manufacturers need to make sure the layout of the shop floor is safe. Employees working in manufacturing facilities must stay six feet apart. Executives might have to get creative with space in their facilities and potentially reconfigure the layout to distance work centers. Many manufacturers are also putting barriers between workstations to further protect their staff and to maintain production. This social distancing needs to be maintained throughout the facility, including places like break rooms. Laird Performance Materials, a global high-tech manufacturer with plants in China, moved some of the canteen tables outside so employees could sit a safe distance apart when eating meals.
Next comes sanitization. Manufacturers must incorporate disinfecting into their processes. This might come in the form of setting up handwashing and hand sanitizer stations to encourage better hygiene, installing touch free and spaced out clock in/clock out stations, having employees wear masks and gloves, and sanitizing between shifts.
The CDC also provides:
- A list of EPA-approved COVID-19 disinfectants
- A detailed guide for cleaning and disinfecting facilities
Additionally, manufacturers should also consider how materials move from one station to the next. If you are passing material back and forth, does it need to be sanitized or will gloves suffice? This needs to be continuously monitored to make sure processes are keeping employees safe and minimizing the risk of having to shut down your facilities. Manufacturers should also take into account how long the virus can live on different types of non-disinfected surfaces. The coronavirus can live on copper for about four hours, cardboard for 24 hours, steel and plastic for up to 72 hours, and on glass for up to 96 hours.
Align the Organization Around Continuous Improvement
As businesses re-open, demand will start to pick back up, but it will still be slower than usual for the foreseeable future. Manufacturers should take this opportunity to eliminate waste in processes and improve production efficiency. This message needs to be delivered from the top, and in some cases that’s already happening.
“We're going to move from problem to process, not from problem to solution,” Compac’s Hart added. “Because if all we do is solve problems, but we never put a process in place we're just going to keep dealing with the same things in a different way down the road.”
Since many manufacturers are already going through the process of evaluating the shop floor for distancing and safety, they can also focus on lean efforts and building better efficiencies in systems and workflow processes. This may mean relocating equipment, moving lines on the shop floor, or even reorganizing for more logical flows. Additionally, manufacturers need to evaluate whether they have the right systems in place to help keep up with demand once it begins to normalize. For those that don’t currently have it, focus on gaining real-time inventory visibility to understand what’s happening on the shop floor in real-time. Manufacturers that proactively improve their businesses in times like these are the ones who will be able to quickly adapt and innovate no matter what.
“It is a powerful exercise for process engineers to look at the work center from a completely different perspective, as well a great opportunity to bring in other staff to provide a unique perspective,” NetSuite’s Matt Wisner said. “The goal is to identify and implement efficient process changes that not only provide for proper distancing but also consider material and people movement, one-piece flow, and point of use inventory.”
The Occupational Safety and Health Administration (OSHA) also offers guidance for manufacturers.
While each state will likely offer its own guidelines, some may prove useful nationally and globally. For example, the California Manufacturing Network has assembled a list of COVID-19 state notices and resources for California, which allowed non-essential manufacturers to open.