Can leveraging digital technologies help manufacturers along the potentially long and difficult road to recovery over the next two years?
Despite welcome upticks in manufacturing performance over the last few weeks, the road to industrial recovery from the devastation of this year’s COVID pandemic is going to be long and difficult for the industry.
For the next two years at least, it seems, manufacturers are going to need patience, agility, determination, and a fresh openness to the adoption of new digital approaches to survive.
“I don’t expect to get back to normal production levels until 2022,” warns Chad Moutray, Chief Economist at the National Association of Manufacturers (NAM) and Director of the Center for Manufacturing Research at the Manufacturing Institute.
Moutray was speaking to a virtual gathering of senior level manufacturing executives on the second What’s Next for Manufacturing? meeting hosted by the NAM’s Manufacturing Leadership Council. He was joined by Doug Carson, Assistant President of Strategic Planning, Business and Product Development at tier 1 auto supplier the BWI Group.
“We’re still wondering if we’re bouncing back, or just bouncing along?” admits BWI’s Carson. “At this point, we are just trying to stay safe, stay focused and flexible, and focus on what we do well.”
Worst Downturn Since the Great Recession
Manufacturing performance figures for the last few months are certainly sobering. “This is the worst downturn since the Great Recession,” noted Moutray, “but the good news is that we seem to be over the worst of the slump.”
The NAM’s latest quarterly Manufacturer’s Outlook survey, for example, revealed a steep collapse in positive expectation for the future, from a high of 95% two years ago, to a mere 34% in May this year, the lowest level since Q1 2009.
It’s the same story wherever you look. Q2 12-month growth forecasts for sales are down by 4.3% compared to the previous quarter, capital investments are down by 2.5%, full-time employment down by 2.2%, and export growth expectations down by 1.4%.
Signs of Recovery
Nevertheless, compared to the record lows of earlier months this year when industrial lockdown was at its height, the ISM’s Manufacturing Purchasing Manager’s Index (PMI) for June saw a welcome return to expansion and growth. The latest Federal Reserve figures also show industrial production rebounding for the second straight month rising by 3.8% and 7.2% in May and June, respectively.
But while all major manufacturing sectors showed some welcome production gains in May and June, almost all sectors are still showing significant declines year-on-year, with primary metals down 27.3%, motor vehicles and parts down 24.6%, and aerospace and transportation down 23.7% over 2019.
The only exception is computer and electronic products which was up by 2% since June last year, no doubt reflecting the massive surge in demand for virtual and remote tools for both industrial and domestic markets during the COVID crisis.
But perhaps most importantly for the longer term as manufacturers continue to strive to recover from the pandemic and resume some semblance of normality in their production activities, Moutray suggests that the industry will still see a an 8.5% drop in production for this year before regaining some of that lost ground with a predicted 3.5% increase in 2021.
“We haven’t controlled the virus yet,” he points out, “so the worry in the worst case scenario is that the fear of another bout of COVID in the Fall, along with the political uncertainty of the U.S. elections, may hold back capital spending until perhaps late next year.”
BWI Group’s Front-Line Response
It’s precisely that level of uncertainty about the future that concerns front line manufacturers like BWI Group as they struggle to adjust to the devastation of the last few months and put in place strategies that will help them to stabilize and recover the business.
“In April we didn’t sell one auto part anywhere except China,” recalled BWI’s Carson. But while China began to bounce back, the company still struggled in other areas around the world like India and Mexico. “It left us wondering, ’Is this the new normal?”.
Extensive Process Restructuring
BWI took a lot of cost cutting steps early on and then focused on four key areas: safety, by introducing extensive on-site safety procedures; keeping it local, by following state guidelines and local site-specific cultures; keeping it simple, by cancelling standing meetings, reducing agendas, and suspending normal reporting cycles; and cranking up communications both internally and with customers and suppliers. He also noted that one of the biggest supplier issues in automotive manufacturing right now is the absenteeism after a workplace COVID incident. That potential issue is making it more important than ever for BWI’s management and human resources teams to stay busy ensuring worker safety across all areas of the company.
“The crisis initiated the largest business process restructuring for the last 10 years,” reflects Carson. “We are trying to make things more efficient for the future, to make faster decisions, and to adopt a strategy of higher frequency, lower content communications to ensure we continue to stay more open and transparent.”
One of the key outcomes of the last few months, note both speakers, is an increasing recognition and reliance among manufacturers on new digital technologies to help them survive and recover from the crisis.
“In a dynamic situation, access to information and validating that information as quickly as possible is most important,” adds Carson, “and for BWI, that’s the number one asset of M4.0 and digital transformation, the ability to know what is going on in your operation in great detail.”
Moutray also believes that harnessing digital tools is likely to be fundamental to how the recovery journey develops. He notes that around three quarters of manufacturers in a recent NAM survey said, where possible, they were going to have remote working as an option, and two thirds said that they see production processes being reengineered with social distancing in mind.
“It will be an interesting time for increased investment in automation on the shop floor,” he added, “and I think we will soon start to see how far technology and reengineering will change manufacturing in the longer term as we emerge from the crisis.”
Dancing in the Rain
Like many manufacturers facing future uncertainty on the road to recovery, the way forward will be about learning to thrive in the new normal, concludes BWI’s Carson. “For us that means focusing on safety, flexibility, and recognizing for sure, that virtual is here to stay.”
And to underpin his view of where the company is going, Carson cited a telling quote from writer, Vivian Greene: “Life isn’t about waiting for the storm to pass. It’s about learning to dance in the rain.”
Upcoming Virtual Meeting on What’s Next for Manufacturing?
The Manufacturing Leadership Council will be hosting its fourth virtual meeting, Learning for the Future, featuring speakers from Lockheed Martin, IBM, and VirTex Enterprises, on Tuesday, July 28 at 11 am ET. Contact: MLCouncil@nam.org for an invitation.