COVID-19 Brings Global Manufacturing Challenges
There is no doubt that COVID-19 has brought unexpected - and in some cases - unwanted changes for people and companies across the globe. At this point in the pandemic, the United States, Spain, and Italy have individually tallied more COVID-19 cases than China, where the pandemic began.
This infiltration of the COVID-19 virus has drastically changed how the manufacturing industry can operate. As the changes keep coming and new challenges arise, manufacturers around the world are racing to navigate and implement changes while regaining control of their operations.
Here are some of the changes and how companies are approaching new ways to do business during this “new normal.”
A Reduction in Global FDI
Manufacturing impacts just about every industry and provides the pieces and parts needed to get jobs done. In fact, the manufacturing sector made up almost 16 percent of the global GDP in 2018.
In 2019, the Global Foreign Direct Investment (FDI) totaled $1.39 trillion. According to the United Nations Conference on Trade and Development (UNCTAD), the COVID-19 pandemic could cause an estimated reduction in FDI by up to 15 percent due to factors such as factory shutdowns.
Other industries experiencing these extreme negative effects on FDI investments are anticipated to include automotive, airline, and energy.
Manufacturers in auto, electronics, aircraft, and chemicals are concerned about the availability of the raw materials required to complete orders and fulfill customer expectations. Specifically, the electronics industry has initiated a reduction in production operations due to new product release postponements and interruptions of necessary components for products brought on by the COVID-19 outbreak.
For example, consider the following.
The Impact on China
China accounts for nearly 85 percent of the total cost of components used in smartphones and 75 percent of what is used in TVs. But, since most Chinese factories were shut down due to the virus, the result was a shortage of supplies and Chinese vendors began increasing the component prices by almost 2-3 percent. This price rise has created a ripple effect in the electronics manufacturing industry and brought on new challenges in production speed and quality.
The European Impact
In addition to its electronic manufacturers, automobile companies in Europe closed their factories or minimized production output. This made a direct impact and contributed to the loss of global trade.
Poor Forecasting, Reduced Satisfaction
As a result of the outbreak of the virus, companies are now shifting their production to countries and places less impacted by COVID-19. For some facilities, orders are postponed while others hired additional staff in other countries to help get products and processes back on track and limit the impact.
Although U.S. ports are still open, delays are inevitable. It is becoming difficult for companies to be accurately forecast and inform customers on order shipments and arrivals. This disconnect and challenge of managing expectations are causing a negative impact on a the customer experience and overall customer satisfaction.
Unfortunately, it doesn’t appear that these changes will be rectified in the near future. Instead, it’s likely that COVID-19 will leave a lasting impact that will continue to change how we do business long after the virus is controlled or a vaccine is distributed. Based on the guidance of experts and forum discussions, it is likely that it may take another 15-18 months before we begin to experience a shift in the US economy that feels similar to the pre-COVID era.
As companies will continue to push and attempt to create, ship, and release their backlog of products to customers in the third and fourth quarters of the year, they will still face long lines and freight delays. And compounding the problem is that as shipping backs up, space will run out as warehouses fill to capacity.
Increased Need for Strategy
This trickle-down effect exposes some of the weaknesses in the manufacturing supply chain. With reliance upon multiple countries to assemble a product, one country experiencing devastation can shatter the entire supply chain.
In current times, some manufacturers may choose to rely heavily on the support of the government while others may choose to wait and re-enter the market until 2021 and consider 2020 a loss. To an extent, both decisions will drastically impact the state of the global economy. As we watch these changes take form, we will also be actively re-engineering and reinventing the supply chain. This shift in the paradigm will be focused on transparency, efficiency, and collaboration - and as a result, create a better end result for everyone.