Manufacturing will be among the industries to be most negatively affected by the evolving humanitarian crisis caused by COVID-19. We expect the pandemic to heavily disrupt both the demand behaviour as well as the supply and capability of companies to deliver goods to the market.
As we speak, the COVID-19 domino effect is in full progress. Just as China is seemingly recovering, the number of infected is quickly rising in Europe and the US, a trend which is expected to rapidly intensify in the weeks to come.
Impact of COVID-19 Around the World
The good news is that China, after hitting a record low in February, has started reopening its factories. Automotive OEMs Renault and Groupe PSA announced they were resuming production in mid to late March.
Last week, Apple has reopened all its Chinese stores, a month after shutting them down. But still, it will take China time to get back to full capacity, and that might prove harder than anticipated.
Meanwhile, in Europe, where COVID-19 is spreading rapidly, manufacturers have not been spared. This particularly applies to Italy, currently the worst affected European country, with the government implementing a nationwide quarantine. Automotive OEM Fiat Chrysler, for example, has decided to stagger its factory shutdowns. This includes three days at three plants that produce Fiat and Alfa Romeo vehicles, and two days at other plants that assemble small Jeep and Fiat crossovers.
The German automotive industry, which depends on Chinese supplies, has also comes under threat. This week, production at the Nissan car factory in Sunderland, the biggest in the UK, has been suspended, and others will likely follow suit.
It’s simply too soon to tell what the impact is going to be on US manufacturers, besides the steep decline in global demand and supply that may create winners and losers.
What Are Countries Doing to Contain the Virus?
Reacting takes time, guts and brains. To minimise the economic impact of COVID-19 on a country level, European governments have started to take a number of measures.
Last week, for example, the Italian government announced a €7.5 billion plan to deal with the COVID-19 epidemic and its wider economic impact. The UK announced a £30 billion emergency stimulus package to tackle COVID-19. This included a Coronavirus Fund targeted at both the National Health Service (NHS) and business.
European Commission President Ursula von der Leyen also promised a €25 billion investment initiative to support particularly affected sectors.
How Exactly Does this Impact the Manufacturing Industry?
In the words of Eric Schweitzer, president of the Association of German Chambers of Industry and Commerce, “industry is in need of unconventional and immediate actions.”
But what exactly are these mechanisms that manufacturers must put into place?
In the context of accelerated disruption and uncertainty marked by trade wars, Brexit, the advent of 5G, regulatory pressures and digitisation, to mention just a few, COVID-19 is piling even more pressure on to manufacturers.
Amidst the non-stop news shaking up global economies, and especially the automotive market, we haven’t heard much yet from the big manufacturers that are about to feel the disruption, let alone what their coping strategies will be.
For example, in early March, German car OEM Daimler said that production in China was stable but that it was too early to forecast the coronavirus impact. In the same week, competitor Mercedes-Benz reassured the world that the global automotive industry was prepared to deal with the coronavirus due to its supply chain mechanisms.
For the past few weeks, we have been speaking to manufacturers across EMEA and the US, and they have been busy and focused on managing the day-to-day while “reevaluating” their business initiatives.
Our team is working hard to get a better understanding of what will help manufacturers cope with the crisis and its impact, in the short and long term. More importantly, we want to understand what the “new normal” for manufacturing will look like.
The most recent developments related to COVID-19 will not stop digitisation. The opposite is the case, as we believe that even an unexpected crisis — a “black swan” — such as this will provide a new sense of urgency for manufacturers to strengthen their businesses through digitisation.
What Are the Implications for Manufacturers’ IT Strategies?
First of all, there will be an initial reaction phase, where companies will be forced to focus on short-term, actionable initiatives to cope with the first phase of the disruption. As we have learned from our conversations with manufacturing companies, initiatives of this kind might entail:
- Embedding hygiene rules in the EH&S
- Decentralising work by enabling UC&C (unified communications and collaboration)
- Assessing the risk of their more strategic suppliers and investing in extra resources to model the cash flow impact of the crisis
It’s very important that companies do not waste energy on initiatives that will take too much time to execute and are designed to cope with this phase only because this phase will change. It’s very likely in fact that the industry will have a bumpy ride for the next four or five months (under the optimistic scenario) and up to 10 months (pessimistic scenario).
In this latter scenario, we expect the pandemic to heavily disrupt both the demand behaviour as well as the supply and capability of companies to deliver goods to the market. This will require a complete new set of skills centred around having higher operational agility and leveraging real-time demand intelligence and process visibility.
What to Expect After the Pandemic?
Markets will eventually settle into a new, post-pandemic normal, which will only partially resemble the world we are used to now. In fact, there will be closer reliance on local markets and probably worldwide trade disruption.
Manufacturing will possibly be based on smaller market pockets and shorter value chains. In this environment, companies will have to reconsider their supply chain footprint and transform their operations to make them fit for purpose and ready for the next disruption.
Many new initiatives will be introduced in this new phase but it’s impossible to figure out how exactly companies will drive their way to success, at least for now.
The IDC Manufacturing Insights team will continue to assess the disruption caused by COVID-19. Please contact Jan Burian or Lorenzo Veronesi for more information or to share your views with us.
If you want to know more about how COVID-19 will affect industries, read it here: