Surviving and Thriving in Times of Low Growth: A Guide for the Future of Manufacturing
“Out of the chip pan and into the fire” must be a recurring feeling among manufacturers – across 2022 and into 2023 – as a proposed rebound following the eye of the COVID-19 pandemic storm has been usurped by a host of new and evolving challenges that have hindered both sides of the supply-demand equation.
There was optimism at the end of 2021 and going into 2022 that demand would begin to recover to what all sectors would recollect as “normal” levels. As costs would return to that perceived normal, supply would become more predictable and demand would yield much-needed profitability.
And then the start of the Ukraine conflict set the cycle into motion once again.
Watch Alan Duncan, Vice President Manufacturing, discuss « Why Resilience Matters in a Low/No Growth Economy and How to Achieve It »
Familiar territory soon struck in the form of demand uncertainty and supply challenges regarding key raw materials that lend to most, if not all, verticals. Energy and oil & gas, in particular, have had ubiquitous impacts regarding necessary supply for production. In addition, consumers’ disposable income have been impacted as a result of rising costs of living.
A looming threat of recession moving into 2023 further paints the picture of a complicated 12 months for manufacturers that started with so much optimism, but is now engulfed in a question they’ve become quite used to in recent times: How can we thrive, or at least survive, in times of low growth?
Juggling a Double-Edged Sword
The landscape and complexity differs slightly for each sector, but the end result is largely the same. Whether it’s OEMs being forced to focus more on aftermarket sales to offset people delaying purchases of larger premium products such as cars. Or consumer goods players watching demand for their A-list brands usurped for budget alternatives, with the same applying to the retail hierarchy too.
Ultimately, demand is being influenced by a climate that is forcing people to tighten their purse strings. And supply is also causing efficiency, logistical and profitability headaches internally for the reduced demand that is still there.
It’s a double-whammy that, before the pandemic, was actually quite unusual. Prior, there had been local disasters and events that had caused international supply chain disruption, which manufacturers had to manage amid largely consistent demand. And there had been recessions that had impacted demand, while supply was primarily on hand to at least fulfill orders that were coming through.
This novel and unenjoyable concept of juggling both sides of the double-edged sword, simultaneously, was hoped to be a 2020-2021 anomaly. And yet, here manufacturers are, year two into stage two of this prolonged period of complexity.
A Complex Environment
In terms of a solution, or at least a way forward, the penny dropped around Q3 2022 that the supposed “normal” wasn’t coming back. Rather, volatility was the oft-mentioned “new norm,” where spikes, fluctuations and drops could so easily be flipped between either or both sides of the supply-demand coin.
With this acknowledgement came the agreed need to react accordingly. But would manufacturers react in the same way as they had during the pandemic?
At the peak of COVID-19, a primary solution for many consumer-oriented manufacturers was to rationalize their ranges – to reduce the amount of downtime across production and, therefore, maximize production across their chosen, remaining products. In early 2022, however, businesses began to refill their pipelines, to reactivate shut down production processes, and to expand their output to make up for lost time. And then demand dipped again…
This left many overstocked, forcing manufacturers to find ways to release working capital by draining stock. But the only way to do that amid a period of low demand is to also turn down future production, which ultimately has a detrimental impact on overhead recovery.
This balancing act of draining inventory down to lower levels reflective of reduced demand, while maintaining a sensible level of production, has also been compounded by decisions around near shoring or supply chain network reassessments. Once again, the cost of upheaving entire ecosystems in a time of economic pressures has been unaffordable for many and illustrates the overall complexity of the environment in front of manufacturers.
Risk Management as a Real-Time Operation
As ever, the situation isn’t entirely doom and gloom. When the playing field is equal for all, the challenges might be shared, but the opportunity to set yourself apart is more specific to each individual company and the decisions they make.
These decisions revolve around being more agile to the ups and downs that they now know will persist on a more normalized basis. Vitally, the same decisions must now revolve around investments into technologies that can help them prepare more proactively for the supply-demand landscape up ahead; while also pivoting in real-time to the unforeseen in the most cost-effective way.
The solutions proposed inform an end-to-end connected suite of automated and AI-driven technologies that offer a holistic overview of the current and forecasted situation based on all relevant factors. Most importantly, this overview can be generated instantly, as an ongoing and real-time process.
This differs markedly from former risk management strategies in manufacturers’ supply chains, where the cadence for identifying, responding to, and revisiting risks sat in the monthly column. It has become clear that a lot can change and fall between the cracks in those four weeks.
COVID-19 and the events that have occurred since have affirmed that clarity around demand, and what can be achieved relative to that demand, sometimes needs to be a daily, if not hourly, occurrence. Similarly, decisions off the back of generated insight need to be made according to the overall impacts they will have, and not just the time or investment it takes to solve an issue.
Thriving in Low Demand
With artificial intelligence (AI) sensing demand and guiding decision making, having a holistic, connected microservice infrastructure in place to enable integrated business planning and execution can bring to light thousands of scenarios in an instant, based on the real-time environment. Those possibilities are then automatically filtered to three or four optimum scenarios that a decision maker can act upon, also based around the business’s objectives and priorities.
Addressing demand, this might mean the ability to either ramp up or dial down a promotion based on its immediate uptake, for example. Meanwhile, from a supply point of view, it could mean planning for the best availability outcomes possible, following a fire or shutdown at a supplier’s facility, while they recover their operations.
The ability to plan and forecast for upcoming months in a more accurate fashion, compounded by responding more appropriately to real-time challenges or fluctuations in demand, means that maximum value can be extracted in the best and worst of times.
For those former positive periods, a more considered rebound can be enjoyed without risking long-term projections should demand drop. While, in low growth environments where manufacturers are worried about cash, service and cost, pivoting from ideas driven through positive growth to redesigning an outlook that reflects the current market and supports a resilient supply chain ready to both survive and thrive is crucial.