OEMs, specifically industrial equipment manufacturers, were already facing significant economic headwinds in their key markets before COVID-19 surfaced.
The world economy was cooling down, global gross domestic product (GDP) declined by 13% from 2017 to 2019, and industrial production in most global markets was slowing. Now, the onset of COVID -19 has added yet another far-reaching layer of complexity to an already challenging environment.
OEMs have been grappling with both manufacturing and supply chain operations, as well as coping with the fact that their customers’ operations have also faced similar challenges. This has caused an exponential effect throughout the entire supplier network, leaving company executives with more questions than answers while they try to develop a blueprint of long-term continuity in an era of ever-increasing change.
Therefore, determining that blueprint is essential to future success—especially since this industrial sector has been critical to the world’s economy. Overall, the industrial sector generates more than $3 trillion in revenues and represents nearly 25% of manufacturing GDP, including 21.2% of GDP in U.S. manufacturing, 25.4% in Europe, and 32.9% in Japan. Industrial operations also represent a significant portion of the manufacturing workforce, comprising up to 30% of all manufacturing employees around the globe.
Most companies have likely already began taking steps to protect their workforce and preserve the integrity of operations. But the next great challenge will be determining how to fully ramp up again in a decidedly different business environment.
Core to this blueprint are five critical business capabilities manufacturers will need to adjust when the time is right. These are “no regret” moves that if, not already being pursued, should be anticipated and acted on:
1. Develop a more elastic and digitally enabled workforce. To enhance workforce capabilities, companies should consider creating a virtual network wherever possible to improve protection of the organization’s people while ensuring optimized levels of productivity.
2. Establish differentiated and resilient supply chains by customer segment as part of adjusting operations to help expedite the chain’s response cycle. This includes reconfiguring the supply chain to mitigate risks while sensing and monitoring to respond more proactively to these risks.
3. Build a resilient and distributed information technology infrastructure and systems throughout the entire enterprise with the intent of increasing the flexibility and responsiveness that will be critical in the post-COVID-19 world.
4. Use digital channels and e-commerce platforms to their fullest extent to keep commercial links with customers and partners, as well as products, machines, and assets in operation.
5. Scale the distribution of digital across the enterprise and its ecosystem—from proof-of-concept to value at scale. This should include the acceleration of digital services and automation of processes to enable cost effectiveness and flexibility.
While maintaining cash reserves in this environment will be difficult, it will be necessary as it will take financial support to ramp up operations. This is crucial, as companies must take the long-view to be prepared to successfully operate their business post COVID-19 implications. A key part of achieving this will be to think strategically by entertaining “what if” questions. OEMs should consider starting with three main questions:
1. What if demand patterns change or are delayed?
2. What if product mixes shift impacting profitability?
3. What if demand starts coming more from digital channels than physical channels?
Such questions are worth asking as industrial equipment companies, like the world, are in a period of unknowns. Those who can create a blueprint that helps them protect their workforce, maintain operations, innovate, and think strategically, will be poised to continue to grow in a less challenging future.