How did companies initially navigate the COVID-19 crisis? Looking to face their new reality head-on, the private sector had no choice but to transform.
Explore BCG's 2020 blog series, full of insights and experiences that helped companies reopen and emerge stronger.
OCTOBER 1, 2020
By Brian Collie, Michelle Andersen, Gang Xu, Rolf Kilian, Daniel Küpper, and Andreas Maue
The coronavirus crisis arrived at a time when automotive OEMs were already facing the greatest disruption that their industry has ever seen. Several auto-industry trends—including autonomous driving, vehicle electrification, connectivity, and shared mobility—have converged to upend decades-old business models. The pandemic-induced recession has added to these challenges, with car sales decreasing significantly across the globe. In the US, for example, sales declined by 31% from December 2019 through May 2020. As a result, OEMs face even greater pressure to adjust their business models and make overdue structural changes.
If history is any guide, the actions that OEMs take today will determine which companies emerge as the winners in the postpandemic world. The auto OEMs that took rigorous actions and used the 2008 financial crisis as a transformative opportunity managed to recover quickly and gained a sustainable competitive advantage.
To date, the auto industry has reacted quickly and effectively to the coronavirus crisis. For example, OEMs in most regions around the globe successfully managed the restart of operations after lockdowns and implemented protective measures to ensure a safe return to work for their employees. Ensuring the continuity of these efforts and promoting constant improvement throughout the crisis are crucial to pave the way for future success. Going forward in the new reality, OEMs should not approach their response to the prolonged crisis as a single, rapid sprint, but rather as a marathon that demands endurance and persistence.
In this marathon, the health and safety of employees remains the top priority over all other issues and initiatives. OEMs’ primary areas of focus should be implementing advanced, digitally enabled solutions to protect people (such as virus monitoring systems), institutionalizing new ways of working (such as remote work), and leading with the head, heart, and hands. Moreover, by encouraging suppliers to also adopt these best practices and tools, OEMs will help to reduce supply chain volatility.
While maintaining a safe and healthy work environment, executives at OEMs must simultaneously manage two efforts on different time horizons. They must take immediate actions to win the fight as the pandemic persists (most likely for 12 to 24 months until an effective vaccine or treatment is developed and widely deployed). And they must initiate bold transformative actions to win the future.
To win the fight, OEMs should prioritize three actions:
Even though near-term issues are top of mind, executives should use the momentum generated by the crisis response to begin taking transformative actions to win the future. Three actions are the most valuable for promoting future success:
Digital technology is key to enabling each of these priority actions. For all automotive OEMs, accelerating the digital transformation of company processes is essential to promote sustainable success and drive growth in the midst of changing and challenging market environments.
SEPTEMBER 3, 2020
By Daniel Küpper, Wilderich Heising, and Thomas Krüger
The COVID-19 pandemic has created severe headwinds for additive manufacturing (AM) players, interrupting what had been a positive growth trajectory. To reestablish the precrisis growth path, AM players must focus on developing a strong value proposition for their products and innovations.
Because AM technology does not require tools, such as molds, it offers greater flexibility to producers than traditional manufacturing provides. The only prerequisites are a printable design, a 3D printer, and the right material. Innovative producers have put this unique flexibility to use during the crisis—for example, by printing face shields and masks and even parts for ventilators with virtually no lead time.
However, notwithstanding such accomplishments, all players in the industry have been hurt by the pandemic, whether immediately or prospectively. For example, 3D Systems, one of the largest manufacturers of 3D printers, cited the impact of the crisis in announcing plans to reduce its workforce by 20%. In contrast, SLM Solutions, a German metals printer manufacturer, recently announced that revenue grew by 90% in the first half of 2020, compared with the first half of 2019. However, the strong growth reflects, in part, weak performance during the same period a year earlier, and the related sales occurred several months ago, before the outbreak of the pandemic. Indeed, looking ahead, the company is forecasting lower demand and revenue than previously anticipated.
The sharp decline in the demand for AM results from three interrelated challenges:
The AM industry can potentially recover quickly from the first two types of headwinds—assuming that the industries it serves, particularly health care and consumer products, rebound fast. The third headwind could have a more enduring impact, as internal cost-cutting threatens to hurt the AM industry’s ability to promote the longer-term adoption of its technology.
On the positive side, however, the crisis may be a catalyst that accelerates the development of applications and technologies that would have otherwise reached the market further in the future. Applications and technologies that truly create value will survive the crisis. But in the coming months, projects with uncertain value propositions will likely fall by the wayside.
Before the onset of the pandemic, BCG’s proprietary Additive Manufacturing Market Model predicted that the AM market in 2020 would reach approximately $14 billion (including material, equipment, and services), up from $12 billion in 2019. But the impact of the coronavirus will cause the market to shrink this year to $10 billion. (See the exhibit.) This represents a 16% decline from 2019 and a 30% decline from the predicted size for 2020. It also marks the first decline since the financial crisis of 2008–2009.
Even so, there is hope. If industry participants are able to convincingly demonstrate the value that AM brings to users, the industry will return to, or even exceed, the 2019 market size in 2021. Thereafter, it will continue to grow strongly, at the rate of approximately 20% per year. This would bring the industry back to its precrisis trajectory in 2024, representing a V-shaped recovery scenario. From that point, annual growth of about 25% is possible through the end of the decade.
Growth will not return on its own, though. To drive this rebound, each player in the AM industry must revisit its strategy and fight for its share of market growth. AM companies need to intensify their focus on the value generated by the technology. Beyond creating value during the crisis, AM technology can support customers’ efforts to win in the postcrisis world. For example, customers can use AM applications to boost supply chain flexibility and reduce inventory requirements, thereby improving resilience.
It is essential for AM players to support their users in finding the most valuable applications and choosing the best technology and materials. This was a promising approach before the crisis and is now more important than ever. Users must see the clear value created by AM technology in order for the industry to return to its precrisis trajectory in the coming years.
SEPTEMBER 3, 2020
By Michael Grebe, Johan Stockmann, Juuso Soininen, and Marc Roman Franke
The COVID-19 crisis has forced companies to reconsider their priorities for technology investments. Digital channels and the virtual workplace have gained importance at the same time that companies are under pressure to cut costs in response to the pandemic-induced downturn. To adjust to the new reality, companies across industries must find ways to retain the most important technology capabilities and increase resilience even as they reduce overall spending.
Leading companies are rapidly rebalancing their technology portfolio and reducing costs by requiring key stakeholders to make a decision about each initiative: should the company stop it, reduce the scope, or accelerate it. The approach entails two steps that a company can complete over the course of eight weeks.
Establish a baseline and quantify the potential cost savings. A company needs to first establish a baseline of its current technology and IT costs and resources. Then, using this baseline, the company should assess the potential cost savings relating to four topics:
This transparency will help the company define and select the relevant measures to leverage this cost-savings potential. BCG’s experience transforming IT into a world-class technology function can support these efforts.
Prioritize initiatives and mobilize for delivery. As the company prioritizes the identified measures and creates an actionable roadmap, it will need to make tradeoffs given the limited resources that are available for running current and new initiatives. A company should therefore accelerate only four types of critical projects:
The company should also set up the governance function, which includes monitoring the program’s progress, and mobilize the necessary organizational capacity and capabilities. With these prerequisites in place, the company should initiate pilot projects. These pilots allow the company to begin to realize its savings goals and to determine if the previously calculated cost savings will be valid if scaled up. If so, the pilots should be implemented at scale to fully deliver the savings.
Depending on their starting point, companies have rapidly rebalanced their portfolio to reduce technology costs by 5% to 15% within 12 months, providing much-needed financial breathing space. Companies can apply the savings to fund capability building, to further accelerate their digital transformation, and to embark on more complex, investment-heavy measures that generate a longer-term return. We have seen cost reductions of up to 40% in a two- to three-year transformation. Importantly, companies can rebalance their portfolio effectively while retaining or even strengthening the technology function’s key capabilities.
AUGUST 19, 2020
By Michael Grebe, Marc Roman Franke, Wendy Anderson, and Michael Leyh
The COVID-19 crisis is rapidly reshaping the digital transformation agenda, confronting many companies with the need to accelerate their digital programs. The focus on digital transformation is clearly warranted. Digitization is an important driver of sustainable competitive advantage and business resilience, according to BCG’s fourth annual Digital Acceleration Index (DAI), a global study of digital maturity that involved more than 2,300 companies in Asia, Europe, and the US.
The most digitally mature companies have superior financial performance in various dimensions. For example, their enterprise value grew twice as fast annually from 2016 through 2020 as that of peers with lower digital maturity. In addition, digitally mature companies typically have the ability to respond to a crisis, and they are becoming bionic companies—organizations that combine the capabilities of humans and machines.
Companies generally recognize the imperative to rapidly advance their digital maturity. In fact, more than 80% of companies surveyed see the need to accelerate digital transformation efforts, according to BCG’s recent Digital Strategy Roadmap study.
As companies seek to accelerate their digital journey, leaders frequently ask four key questions:
To answer these questions, companies should follow a four-step approach. (See the exhibit.)
Using this approach to accelerate a digital transformation has generated significant impact, enabling companies to:
AUGUST 10, 2020
By Claudio Knizek, Daniel Weise, Daniel Küpper, Marcel Sieke, Rajesh Shetty, and Boris Sidopoulos
To win the fight against COVID-19, companies must act quickly to create stable and cost-efficient supply chain operations in the face of extraordinary volatility in demand and supply. To transform and win the future in the postpandemic world, companies need to take specific actions that will build supply chain resilience for the long term. Supply chains must be adaptable to withstand the impact of trends that have been accelerated by the pandemic, such as the emergence of new consumer needs and the reversal of globalization.
Using rapid-diagnostic tools is essential to understand how the crisis is affecting a company’s entire supply chain and to develop a suitable action plan. Companies can use quantitative and qualitative assessments as well as internal and external benchmarks to establish a baseline of performance and identify priority areas for improvement.
To implement changes in these priority areas, companies need advanced digital capabilities, such as a supply chain planning platform that uses artificial intelligence, integrates a control tower approach, and monitors supplier risk. Companies must also rethink their ways of working across the supply chain, including processes for sourcing.
To accomplish their goals, companies should focus on four priorities: end-to-end planning, supplier and risk management, logistics and distribution optimization, and an end-to-end supply chain redesign. We delve into each of these topics in the slide show below.
AUGUST 6, 2020
By Damon Bland and Justin Ahmad
The COVID-19 crisis has motivated many companies around the world to launch transformation programs. Indeed, BCG believes that companies must transform to thrive in the postpandemic world even as they seek to win the fight against the coronavirus in the near term. As companies launch these efforts, they must come to terms with a sobering fact: most operational transformations ultimately fail to capture their intended value.
There are many reasons why transformations fail. But one common problem is that leaders focus on implementing new technologies and processes without giving enough attention to understanding and changing people’s mindsets, behaviors, and practices—the “soft” issues—and supporting those changes with the right organizational structure and capabilities. Getting these soft issues right is essential for extracting the full value of an operational transformation over the longer term.
To achieve a meaningful shift in mindsets, behaviors, and practices, leaders in manufacturing companies need to act on several fronts concurrently:
1. Understand what a transformation means on all levels. Leaders must understand the higher-level goals of the transformation and the main inhibitors to achieving them. (See the exhibit.) Moreover, they should be capable of articulating—in layman’s terms—these goals and problems accurately and consistently. It is not enough to expound the virtues of the many hundreds of improvement tools. A comprehensive understanding of the transformation is essential for bringing the entire organization along on the journey.
For example, in launching a change program as part of a three-year transformation, an automotive supplier defined initiatives across the organization to support the overall goal. The fact that all areas of the business were contributing fostered an organization-wide view that we’re all in this together. The company’s leaders complemented this approach with greater transparency into objectives and progress across the organization and much more communication than in the past. These efforts resulted in significantly higher levels of collaboration among functional silos, such as procurement and operations.
2. Set clear but discontinuous goals. Leaders need to explain why a transformation is required in a way that employees will regard as authentic. To gain employees’ support, it is not enough to merely communicate an abstract desire to become number one in the industry, for example, or set an incremental target to be 5% better than last year. There must be a higher purpose. This may take the form of a strategic imperative that is discontinuous (such as realizing a net-zero carbon production footprint) and not simply an extrapolation of prior improvement. Leaders need to set a transformative ambition with enough “stretch” that teams are not going to see obvious ways to achieve it. Even so, the ambition must be plausible and look beyond this quarter’s, or even this year’s, results.
In setting discontinuous goals, companies need to avoid the trap of overcommitting the organization to an abundance of initiatives, the vast majority of which will fall by the wayside. The automotive supplier prioritized a few critical initiatives. It focused resources on completing these and then moved on to the next set of prioritized initiatives. It also placed a premium on accountability, including requiring weekly status updates across the organization, from the plants to the C-level.
3. Define and drive the targeted behavioral change. People’s behaviors are notoriously difficult to change. Leaders must clearly communicate the purpose of behavioral changes so that each individual understands the importance of the changes he or she is being asked to make. Leaders must also consistently exemplify the behaviors that they are asking other people to adopt. Finally, leaders must provide people with capabilities and systems that enable the behavioral changes.
At the same time, senior leaders must verify that what they think is happening is actually happening at the frontline. This requires establishing a structured process in which C-suite executives visit the frontline and, importantly, take middle managers with them. Leaders should, for example, attend daily performance reviews to better understand the issues facing teams and ensure that teams are working on the right operational priorities. They should use the visits to interact with team members, ask questions, and participate in frontline continuous-improvement activities. They can then apply the insights to offer targeted support, such as by removing the sources of impediments, building capabilities, improving communications, or clarifying guidance.
4. Help senior leaders change their own behaviors. Although behavioral change starts with senior leaders, it is unlikely that they will be able to act differently on their own. To assist them, a company could use an external coach, such as a former senior executive of another company, to help talk leaders through what works and what does not. The coach should be capable of giving constructive feedback on the behaviors of the top team—when leaders do well and when they fail to model the right behaviors. The top leaders should, in turn, coach their direct reports and establish a process for cascading the coaching throughout the organization.
In seeking to change senior leaders’ behaviors, the automotive supplier focused on transitioning from a culture of command and control to greater empowerment at all organizational levels. To enable this, the company defined targeted actions and behaviors for the plant leadership, including those at the supervisor level. This included defining the standard work for plant leaders as well as setting specific improvement priorities for each leader.
5. Provide the supporting organization structure and capabilities. A company must develop the right organization structure and embed the capabilities needed to deliver the transformation. Operations leaders and plant managers who run a steady-state environment may not have the right capabilities to drive a transformation, such as the ability to prioritize initiatives and focus their teams on the right tasks. Importantly, these leaders also need the will and energy to disrupt the status quo and lead the change.
A successful operational transformation takes time, effort, and tenacity. The investment was often difficult to justify in the pre-pandemic world of short-term quarterly reviews and rising shareholder expectations. The current crisis may have lowered these expectations, thereby providing companies with some unexpected elbow room, at least once liquidity is assured, to experiment and take a longer-term view. Companies should seize the opportunity to give the soft side of operational transformation the attention it deserves.
JULY 22, 2020
By Reinhard Messenböck, Niels Kammerer, and Michael Lutz
To win the fight against COVID-19, corporate leaders must address many complex issues, but none more critical than those involving their people. In previous articles, we set out people priorities for immediately responding to the crisis and managing the return to work. Now, as companies seek to operate efficiently during the ongoing pandemic, they must turn their attention to two key people-related issues: ensuring the effectiveness of remote work, often with a focus on productivity, and rightsizing the workforce and related costs for the new reality.
Ensuring the Effectiveness of Remote Work at Scale
Among the many aspects of managing the return to work, ensuring the effectiveness of remote work is a key priority. Seemingly overnight, the COVID-19 crisis has turned remote work from the exception into the rule for a substantial portion of the workforce. BCG’s recent Workplace of the Future survey reveals that most organizations believe their future workforce will be much more remote than ever before. Overall, companies expect approximately 40% of employees to use a remote work model in the future. Thirty-seven percent of companies expect that more than 25% of employees will use hybrid models that combine remote and onsite work. Leaders must develop a bold yet sustainable vision for how remote work will grow in the future. Even as they develop a long-term vision, leaders need to address numerous immediate challenges, which we group into three categories.
Rightsizing the Workforce and Costs
To ease the immediate financial pressure of the crisis, many companies responded with short-term measures, such as furloughs and hiring freezes, that in some cases were supported by government aid. However, despite gaining some breathing room, most companies still face entrenched issues relating to workforce size and costs. Indeed, at many companies, the crisis exposed issues that existed before the pandemic. These issues will become even more burdensome during what is expected to be a slow recovery, thus accelerating the need for transformative changes.
To thrive in the medium to long term, companies need to focus on cost efficiency in three categories:
In deciding how to rightsize the workforce, companies need to manage tradeoffs in four dimensions. (See the exhibit.) Because it is not feasible for companies to achieve the best outcomes in all four dimensions, they need to thoroughly discuss the tradeoffs and prioritize the actions that will most effectively promote their company strategy.
Decisive action requires time-consuming efforts to align with employees, workers’ councils and unions, external stakeholders (such as investors and suppliers), and the media. So companies must act now to initiate these long-term adjustments—even as they devote attention and resources to ensuring the health and safety of people returning to work. Companies that put off taking action will limit their opportunities to set the agenda and will be forced to take less effective, reactive measures. They also risk damaging their credibility and reputation among the workforce and stakeholders.
JULY 22, 2020
By Kestas Sereiva
To safely resume operations during the ongoing COVID-19 pandemic, companies must take steps to monitor and prevent the spread of the coronavirus among their workers. An effective approach is what BCG calls the 4T-IQ virus monitoring system (VMS)—one that companies can adapt to their workplace and sustain.
The 4T-IQ VMS integrates testing, tracing, tracking, and technology (the 4T’s) as well as isolating and quarantining (IQ). (See the exhibit.)
However, technology by itself is not enough. For example, Bluetooth-based tracing apps suffer from technology limitations and cross-device compatibility issues, and the apps require hard-to-achieve adoption rates. Tracing apps will be useful to augment human tracers, but they will not replace them anytime soon.
To build an effective and sustainable 4T-IQ VMS, companies should take several steps.
Make the system adaptable to a variety of operating environments. Most large companies have various types of work sites (such as offices, retail locations, field operations, or plants). They also have a diverse workforce with respect to age, health, and criticality to operations. And they operate in multiple regions that have different governmental responses to the pandemic, cultural attitudes, and laws.
These companies should consider the diversity of each of these dimensions when designing a 4T-IQ VMS. Ideally, all supporting technologies (such as a mobile app, management dashboard, and a set of tracing technologies) should be configurable to adjust to the required variations. This will enable these companies to use a single set of technologies across their environments, facilitating a consistent, company-wide level of response, support, and monitoring.
Design and implement the 4T-IQ VMS holistically. BCG has seen some companies design and implement each element of the 4T-IQ VMS separately, often using different teams. This approach is inefficient, and it will limit the system’s effectiveness when deployed.
Instead, companies should take a holistic approach by designating a single point of accountability for the VMS and a single team to implement it. Additionally, companies should establish the design principles and select the supporting technologies centrally. To ensure flexibility, however, regions and countries should be allowed to adapt the principles and technologies for their specific context.
Facilitate stakeholder agreement and rapid implementation. The need to select among design options for the elements of the 4T-IQ VMS can delay approvals and implementation. By making design choices early in the process, a company can avoid disagreements and accelerate implementation. To make upfront design choices, consider the following questions:
Additionally, executives who are leading the program should ensure consistent and timely communication to all stakeholders.
Once established, the 4T-IQ VMS needs to become permanently integrated into the company’s resilience toolkit. It is very likely that the VMS will need to stay in use until vaccines or effective treatments are available. Beyond this point, companies will need to keep the VMS on standby, so that it is ready for quick reactivation. The relative success of containing the coronavirus in many Asian countries illustrates the importance of being prepared for a contagious disease outbreak. In responding to COVID-19, these countries drew upon existing procedures and protocols, staff expertise, and institutional memory in the government and in society that were developed during previous epidemiological crises.
JULY 13, 2020
By Daniel Küpper, Claudio Knizek, and Andreas Maue
To thrive in the postpandemic world, manufacturing companies should use the COVID-19 crisis as an opportunity to design future operations. Key benefits will include enhanced agility, improved resilience, and lower costs.
To capture these and other benefits, companies should initiate two transformative changes:
Building the Factory of the Future at Scale. In their efforts to digitize operations, many manufacturers have focused on narrow implementations of discrete use cases. To capture the full value of these digitization efforts, companies must take a holistic approach that encompasses not only implementing technologies but also improving plant processes and structure. And they must discontinue efforts that do not deliver the expected results and scale up those that do throughout the entire production network, not only in specific facilities. In other words, companies must build the factory of the future at scale.
In order to scale up and drive continuous improvement, a company needs to rethink its organization design and put in place the right systems and resources. Investments in digital operations can enable cost reductions of up to 30%—a crucial contribution to gaining a competitive advantage in the future.
Implementing the Green Factory of the Future. Manufacturers should prioritize emissions reduction despite the pandemic. Indeed, companies may need to take climate protection measures in order to receive financial support from the government. Public pressure for this linkage will likely rise, as production processes account for approximately 30% of global carbon emissions. Moreover, because the decarbonization of manufacturing is among the most powerful levers that can be used to address climate change, a company’s environmental approach is increasingly influencing its market capitalization and social value.
As a result, a company needs to strongly focus on continuously reducing its carbon footprint, especially with respect to its production processes. By implementing a concept that we call the green factory of the future, a company can apply levers to avoid, reuse or store, and offset carbon emissions along the entire value chain.
Investing in these initiatives, even as the fight against the pandemic persists, is essential to ensure future-ready operations and long-term competitiveness.
JUNE 24, 2020
By Daniel Küpper, Claudio Knizek, Bitan Datta, and Andreas Maue
To win the fight against COVID-19, manufacturing companies should focus on rapidly optimizing their sites.
Companies can quickly reduce costs and increase efficiency in the immediate term by making three no-regret moves:
Companies can realize improvements in the short and medium terms by taking a three-step approach:
Companies must also prepare sites for the postpandemic world by initiating transformative changes to their operations, including digital implementations that enable proactive identification of risks and rapid mitigation.
JUNE 24, 2020
By Ravi Srivastava, Daniel Küpper, and Claudio Knizek
Most chief operating officers (COOs) of manufacturing companies have experience managing through crises, but they have never faced anything like the COVID-19 pandemic. Companies are now operating in a new reality, characterized by increased uncertainty and volatility, enhanced health standards, and, in some industries, a reversal of globalization trends. A defining feature of this new reality is that COOs must respond not only to a sharp decline in demand (as they did during the Great Recession, for example) but also to unprecedented supply-side disruptions.
Until a vaccine or highly effective treatment is widely available—12 to 24 months from now, according to the World Health Organization—COOs must lead their company’s efforts to win the fight by maintaining stable and cost-efficient operations as the pandemic persists. At the same time, they must initiate long-term actions that will position their company to win the future by gaining competitive advantage in the postpandemic world.
To navigate the challenges in the new reality, COOs should set five priorities now.
Ensure Business Continuity and Manage Liquidity
When countries lifted their COVID-19 lockdowns, COOs faced the challenge of safely restarting onsite operations. Many companies, with support from a rapid response team, have successfully managed the restart of operations and the return to work for thousands of employees. They must now turn their attention to the 12- to 24-month fight phase. During this marathon, business continuity and competitive position will constantly be at risk and require active management.
To win the fight, COOs must shift the rapid response team’s focus to tasks that are essential for stabilizing operations and ensuring business continuity. These tasks include adapting and optimizing production processes while complying with social-distancing rules, establishing a virus-monitoring system, and ensuring adequate supplies in the short term.
During the fight phase, it is also vital to rigorously manage liquidity. The effort should be led by a cash management office that is explicitly responsible for managing short-term liquidity, creating liquidity plans, launching cash preservation measures, and monitoring and forecasting cash and liquidity development. To further free up liquidity, COOs should optimize net working capital, especially inventory.
Rapidly Reduce Costs
For some companies, such as those in the pharmaceutical industry, revenues have been stable or even increased during the crisis. But most companies’ financials are under heavy strain. In a recent BCG survey of business leaders, almost half said that they expect their company’s profits to decline by more than 20%, and about 90% are planning company-wide cost-reduction programs.
To maintain competitiveness during the fight, COOs must act quickly. They should identify cost reduction measures and implement them across all operations, always with a strong bias toward quick wins. The measures should address all value pools in direct and indirect functions—there should not be any sacred cows that are exempt. In many industries, COOs need to reduce the operating costs of manufacturing plants by rightsizing the staff to meet the current needs. At a minimum, they should seek to maintain precrisis productivity levels despite the possibility of lower utilization. In many cases, an additional productivity increase of up to 15% can typically be gained quickly.
Implementing cost reduction measures is essential for securing a company’s survival—not only for the next few weeks but also for many months to come.
Build Supply Chain Resilience
The first weeks of the COVID-19 crisis revealed a weak spot for many companies: a global supply chain that operated efficiently in a steady-state environment but that was highly vulnerable to external shocks. In fact, supply disruptions caused some companies to stop or slow down production even before the virus outbreak reached their facilities.
To maintain business continuity during the fight phase, COOs need to increase the resilience of their supply chain. Digital tools, such as a supply chain control tower or a digital twin solution, can significantly improve transparency and stability. To unleash the full potential of digital tools, however, humans and digital tools must work together seamlessly in order to implement what we call the bionic supply chain.
Considering that increased volatility and uncertainty are expected to persist even as the immediate crisis subsides, building a resilient supply chain is a long-term imperative. Increasing its resilience will not conflict with efforts to reduce costs if done correctly.
Design Future Operations
In recent years, most manufacturing companies have gained significant experience with digital-operations use cases. But many companies have focused on narrow implementations of discrete use cases. To capture the full value of these digitization efforts, COOs must take a holistic approach that encompasses not only implementing technologies but also improving plant processes and structure. A focus on value also requires discontinuing efforts that do not deliver the expected results and scaling up those that do throughout the entire production network, not only in specific facilities. In other words, companies must build the factory of the future at scale.
In order to scale up and drive continuous improvement, a COO needs to rethink the organizational design and put in place the right systems and resources. Successful COOs recognize the future importance of continuing to invest in operations now, even as cost reduction takes center stage during the crisis. Indeed, investments in digital operations can enable cost reductions of up to 30%—a crucial contribution to winning the fight and gaining a competitive advantage in the future.
Address Environmental Sustainability
Because many manufacturing companies are still struggling with the immediate impact of the crisis, emissions reduction is not always a top priority. However, we expect this to change quickly. In many countries, companies may need to take climate protection measures in order to receive financial support from the government. Public pressure for this linkage will likely rise, as production processes account for approximately 30% of global carbon emissions.
Moreover, because the decarbonization of manufacturing is among the most powerful levers that can be used to address climate change, a company’s environmental approach is increasingly influencing its market capitalization and social value. This was the case before the pandemic, and it will remain true during the crisis and beyond.
As a result, COOs need to strongly focus on continuously improving their company’s carbon footprint, especially with respect to its production processes. By implementing a concept that we call the green factory of the future, COOs can apply levers to avoid, reuse and store, and offset carbon emissions along the entire value chain.
COOs must pursue these five priorities to support their company’s efforts to win the fight during the next 12 to 24 months and transform to win the future. The effort to maintain strong operations in the new reality will require agile decision making from COOs across the immediate-, medium-, and long-term time horizons. In short, COOs must take decisive actions today to ensure robust operations in the future.