In times of crisis, such as the new Coronavirus pandemic, some will discard established processes to decrease short-term prices to maintain quarterly profitability. Management might be considering that, because we have less activity, we do not require maintenance. However, this strategy is short-sighted and positions the company for failure and chaos when recovery takes place.
Panic Creates Chaos
Nearly all companies have the required assets for producing the goods and services that provide revenue. Among companies currently experiencing a rapid decline with the COVID-19 pandemic, the administration feels intense urgency -- some might call it panic - to reduce on prices. Since the activity is low, there is a desire to eliminate maintenance.
Unplanned Downtime leads to Lost Revenues and Shareholder Value
Why maintain equipment working below capacity? The metric for maintenance includes near-zero unplanned downtime for significant assets, which consists of those used to generate revenue. Without maintenance, unexpected downtime rises, creating confusion among the employees trying to produce what income is available. With missed shipments, this insanity extends to clients at a critical time in their recovery. The anxiety turns into a sharp reduction in revenues, brand value, and shareholder value.
COVID-19 Likely a Short-term Financial Issue
In terms of the progression of this disease, the U.S. appears to be approximately two weeks behind Italy. The number of cases peaked on March 21 in Italy. For every day since Italy has observed lesser new cases than that peak. The number of every day new cases of COVID-19 in the U.S. should peak in a couple of weeks. Statistics show that social distancing has reduced the spread in the U.S. Analysts predict an 80% chance that the current patchwork of social distancing, lockdowns, and self-quarantine measures will prove useful, and daily new cases are falling down to deficient levels by the end of May.
Retain Ability to Respond to Recovery
Adjust this quarter's requirements with the next Quarter. Though unemployment has increased, a large portion remained employed. Self-quarantines and social distancing caused reduced spending and cabin fever -- the combination presents significant pent-up demand. The time from practicing social distancing to business restarting has been 2 to 3 months in nations where active cases of coronavirus have fallen. Next Quarter, the expected lifting of distancing should release a surge in spending. Those unemployed will become employed, adding to the spending surge. Anticipate demand sometime in the next two quarters to spike expected before the pandemic. Those with reliable and well-maintained equipment will be positioned to react to this level of demand. Those companies that prepare for the recovery will profit.
Upgrade the Maintenance Strategy
Consider going beyond sustaining the current maintenance strategy. This period of excess capacity provides a chance to update the maintenance plan for critical assets. Consider substituting preventative maintenance with predictive maintenance using "small data" from a particular machine for condition monitoring and creating an alert when things decay.
Research has shown that maintenance costs for a piece of gear are reduced by half with Predictive maintenance (PdM) over preventative maintenance (PM). PdM schedules the work when it's really needed, i.e., as an issue starts to emerge and before the failure. Additionally, since 82 percent of resources exhibit a random failure pattern, unplanned downtime occurs during the period between scheduled PM. PdM can detect gear issues to prevent random failures.
Domestic Manufacturing Is Essential to Maintaining Emergency Supplies
Acute shortages of face masks and respirators show our far-flung sourcing of products is unfit to manage a prolonged pandemic or other long-lasting crisis.
That doesn't mean the overall model of the global market, which focuses on increasing specialization, just-in-time transportation of goods from distant sources, and production based in developing nations, has to be abandoned. This system reduced the costs of consumer goods and has helped pull over a billion people in developing countries.
However, as Covid-19 shows, the system can be fragile, and in times of pandemic, it doesn’t work for every product or service. Industries and governments will need to recognize which ones are essential in short order to measure their vulnerability to supply-chain risks, and then take action to safeguard supplies.
Covid-19 is the most significant, and latest, blow to international trade. But we have also endured through the September 11, 2001, attacks, the 2003 SARS outbreak, Japan's Tohoku earthquake, and the Thailand flooding of 2011. We have observed essential items made overseas imported with safety obstacles and other quality flaws.
Drawing lessons from these experiences are essential in moving ahead
The first step in making supply chains more resilient is currently deciding which products should have special treatment. Flat-screen TVs and Fast fashion? No, we could do without those for quite some time.
Medical supplies, devices, and drugs? Absolutely. No interruption in supply is tolerable. In a health crisis, that means personal protective equipment like gloves, masks, and shields. Medical equipment--ventilators and thermometers--which have been outsourced to other countries might be in short supply because national supply chains are either missing or rely on overseas plants for components and raw materials.
Besides the current pandemic, wars, earthquakes, fires, and man-made calamities will need elaborate contingency plans. These decisions can not be left alone in the private sector. State governments and federal agencies will need to intervene and work to ensure contingency plans are in action and ready to deploy in an emergency. The U.S. Food and Drug Administration, the Federal Emergency Management Agency, the National Institutes of Health, and many others require a coordinated strategy that includes a list of equipment and supplies which can be placed into service before overseas supply chains are repaired.
For example, a high domestic stockpile of medical supplies and masks would have bought the U.S. critical time to secure national domestic production. How large should that stockpile be? One alternative is based on the time it would take to develop new capacity, or to change domestic production for this particular purpose. If it needs six months to accomplish self-sufficiency, then it’s essential to have at least a six-month stockpile.
Safety issues are another concern. Some things are best produced domestically. Many over-the-counter and prescription health products that were formerly made in the U.S. are now either made in China or depend on Chinese factories to provide necessary ingredients.
Not just is it risky to rely on overseas suppliers. However, the failure of offshore producers to implement quality control and safety standards also puts lives at risk.
In 2018, the FDA cautioned that generic versions of a general blood pressure drug, Valsartan, were tainted with NDMA, a carcinogen. The drug was manufactured in China. The agency has encountered similar problems with generics made in India.
The solution is to bring more production of life-saving products back into the U.S. Costs may be higher. However, for essential drugs, the real cost is in development and research, and the expense of manufacturing is generally low.
The U.S. can't afford to lose its production base. This transition back to production would be much tougher with no skilled employees and physical factories. We must applaud G.M. and Ford's attempts to accommodate automobile manufacturing assets to ventilator manufacturing, which is a difficult transition. It takes a new supply chain for layout, part, stands gear, and capabilities to meet medical-equipment regulations. The clothes retailer Brooks Brothers have gone this route, shifting from making stylish shirts to producing gowns and masks for medical professionals.
Companies need to measure supply-chain risk and report it. Many firms aren't conscious of potential issues buried deep in their supply chains. Sometimes, they do not even know who distant suppliers are. According to a poll conducted by Deloitte in 2018, 65 percent of over 500 acquisition leaders in 39 nations have restricted or no visibility beyond tier-one suppliers. A latest Harvard Business Review article reported that according to a poll conducted by Reslinic in late January and early February after the Covid-19 outbreak in China, 70 percent of the 300 respondents said they had been attempting to identify which of the suppliers were in locked-down areas of the country.
Planning and preparation are crucial. After the 2011 monsoon flood in Thailand, which inundated several of the nation's manufacturing areas, the hard-drive maker Western Digital quickly revived operations thanks to contingency planning. It shifted equipment and inventory to higher floors in its Thai factories, moved production to a plant in Malaysia, and was able to restart shipments in less than two months. It required Honda six months to restart its production after the flood in Thailand.
Before a crisis, organizations need to map out their entire supply chains and identify potential gaps. They require to work with suppliers to generate contingency plans, as Western Digital did, to deploy as soon as disorders occur. And authorities should require them to report their mitigation plans and risks just as they do for financial risks. Yes, it costs to plan and to have some flexibility and redundancy. Consider this insurance for supply-chain breakdowns.
Transparency is also critical. The citizens would benefit from understanding more about supply chains if only to avoid the panic shopping we’ve noticed during the pandemic. Panic for a toilet-paper shortage was totally baseless. Paper products sold in the U.S. are produced mainly here: International Paper's pulp mills in North Carolina and P&G's Charmin is made in Pennsylvania. Production is consistent, so resupply is constant, as is consumption. Had customers known these facts, panic purchasing might not have happened.
In an uncertain world, firms need a two-pronged strategy to supply chains: one that takes benefit of international production for the global market, and one that maintains domestic manufacturing, possibly focusing on higher-value products.