The global epidemic COVID-19 has profoundly affected the global economy, continuing to disrupt production and supply chains, causing severe consequences for society, businesses and consumers. In which, most affected is the manufacturing industry, especially in the production of raw materials and spare parts.
Overview of the fluctuation in the manufacturing industry
The disruption of global supply chains has been the sector’s greatest challenge caused by the pandemic. Beginning with China in early 2020, widespread shutdowns of Chinese manufacturing facilities due to quarantine mandates caused a ripple effect across the global economy. During this period, industries with high trade exposures to China struggled to maintain operations. This leads to a sharp decrease in import and export demand, causing a great impact on the manufacturing industries.
However, the effects of the crisis will vary greatly depending on the sub-sector. Construction machinery and intralogistics equipment, for example, are likely to feel much less severe effects than they did during the financial crisis due to expected government infrastructure stimuli and an increase in e-commerce. On the other hand, companies in the machine tools, plastics machinery, and steel production equipment sectors will feel the effects much more strongly. The reasons for this are overcapacities that already existed before Coronavirus (steel) and the acceleration of disruptions (E-Mobility, sustainability), which are leading to restrictive investment behavior, such as in the car market, which is important for machine tools.
For the automotive and semiconductor industries, risks have risen including supply chain interruption due to production stop for raw material and spare parts, various setbacks in logistics, and the unknown timeline for recovery. With the continuous escalation of the pandemic, the condition has changed from supply and demand recession in China to the global supply shortage under which supply chain interruption already happened in this industry. For example, in the US, automobile manufacturers struggled to secure steering components originally sourced from Chinese manufacturers, thus causing delays. This is just one example of many other disruptions that have caused manufacturers to idle production and rethink the resilience of their supply chains.
In fact, the coronavirus has affected the manufacturing industry in China, US, and Germany greatly. China's purchasing managers' index (PMI) in February decreased to 35.7 with 14.3% lower than the PMI in January as reported from the National Bureau of Statistics. According to IHS Markit, flash US manufacturing PMI in March was down to 49.2 which registered as the sharpest drop in output since August, 2009. The same index for Germany dropped to 45.7 as well.
Production Interruption of Raw Material and Spare Parts
Global supply chain has been formed for many man-ufacturing industries with enterprises closely connected with each other. China, US and Germany have become regional manufacturing centers for North Asia, North America and West Europe, respectively. Meanwhile South Korea, Japan and Singapore have been im-portant members for the global value chain due to their industry or geographic advantages. These countries have contributed over 40% of total export of intermediate products. Plenty of plants in above countries are facing production interruption or delay due to COVID-19. In a short time, a certain number of manufacturing enterprises which are deeply involved in the global supply chain will be forced to shut down because of lack of raw material and spare parts supply.
China imports a lot from countries which are deeply affected by COVID-19. Production may stop for key components such as integrated circuits, engine, and chip in semiconductors, electronics, and other industries due to the deteriorated situation in these countries.
On the one hand, China has become the center of global manufacturing and the biggest manufacturing site for raw material and spare parts for many industries. China holds critical value to industries like machinery, telecommunication, precision instruments, etc. As the mostly affected city, Wuhan is also a major manufacturing center within China where large companies in the auto and semiconductor industry have manufacturing sites, such as Foxcom, Dongfeng Motor Group, Honda, and General Motors. COVID-19 has severely affected Wuhan and spread out to other provinces like Guangdong, Zhejiang, and Jiangsu where a great number of manufacturing enterprises are clustered. Enter-prises within these areas have delayed or suspended the production since there is a shortage of laborers, raw material, and spare parts. Hence, the output of cars, cell-phones, and related intermediate products has decreased dramatically.
On the other hand, China is the main sourcing site for the manufacturing industry. Plant shutdown or production delay within China poses great impacts on enterprises in related industries in other regions. According to the National Bureau of Statistics, new import and export order indexes in February were only 31.9% and 28.7% respectively. Although the certain stock is kept, the decrease of China’s export will gradually affect down-stream enterprises in other regions and lead to supply interruption of raw material and spare parts for industries like machinery, auto, pharmaceutical industry, etc.
So, what are the challenges?
Since the start of the coronavirus outbreak, the world’s production system has seen factory shutdowns, demand surges for essential goods, stockpiling and panic buying, as well as shifting consumer preferences (e.g. online over in-person).
This has raised questions about the level of resilience of global value chains and the overall approach to manufacturing. Facing up to these disruptions requires new forms of collaboration across companies and industries to ensure business continuity, while protecting employees and improving supply systems’ resilience for the future.
How to enhance manufacturing industry resilience in post-COVID-19?
Even though manufacturing companies are busy dealing with immediate shocks currently, they also need to think beyond the firefighting plan and start to prepare for the post-crisis world to recover and thrive afterward.
Improving supply chain visibility: Most companies are having difficulties in possessing end-to-end visibility when managing a multi-tiered supply chain nowadays. With the acceleration of the digital supply chain stimulated by COVID-19, technologies such as radio frequency identification and blockchain can be implemented to enhance information sharing and improve visibility in the supply chain.
Managing supply chain planning with intelligent analyses and simulations: Companies should better plan to avoid the bull-whip effect with all the irrational consumer behaviors and stimuli announced during the pandemic.
In the era of big data, recalibrating and optimizing supply chain planning with extensive data digging and analysis is critical for business success. Manufacturers should do scenario planning, rely on the leverage of the predictive power of artificial intelligence and help to anticipate the uncertainties better. And then, the sourcing strategy is to be re-evaluated and the supply network can be redesigned accordingly with the aid of dynamic programming to create a more resilient supply chain. Thereby, minimizing the negative impacts of Covid-19 on the manufacturing industry, especially in raw materials and spare parts.
REFERENCES
1. Masters, N. and Analyst, S. (2020). Macro Effects of COVID-19 on the Manufacturing Sector. IBISWorld. https://www.ibisworld.com/industry-insider/coronavirus-insights/macro-effects-of-covid-19-on-the-manufacturing-sector/
2. Kronenwett, D. MANUFACTURING INDUSTRIES AND COVID-19. Oliver Wyman. https://www.oliverwyman.com/our-expertise/insights/2020/jun/manufacturing-industries-and-covid-19.html
3. Cai, M. and Lou, J. (2020). Influence of COVID-19 on Manufacturing Industry and Corresponding Countermeasures from Supply Chain Perspective. Journal of Shanghai Jiao Tong University. https://link.springer.com/article/10.1007/s12204-020-2206-z
4. (2020). How can the manufacturing industry rebound from COVID-19? World Economic Forum. https://www.weforum.org/our-impact/how-can-the-manufacturing-industry-rebound-from-covid-19
5. Mukhalalaty, A. (2020). COVID-19: The Impact on the Manufacturing Industry. MARSH. https://www.marsh.com/ae/en/insights/risk-in-context/covid-19-impact-on-manufacturing-industry.html
Comentarios