There is no doubt that different sectors, the manufacturing industry included, have been shaken by the COVID-19 pandemic. Learning from other significant upheavals, like the financial crisis of 2008-2009, it will take several years before everything goes back to the pre-crisis level.
In 2008, the manufacturing industry took three years to get back to the pre-financial crisis level. With the current pandemic, there is no certainty on how the crisis will end. But, one thing is sure – the pandemic will have far-reaching impacts on the manufacturing firms in the long run.
Here is how the COVID-19 pandemic is affecting the manufacturing industry.
COVID-19 Recession
Billions of people from different parts of the world lost their jobs as others closed businesses following the introduction of the lockdown and social distancing measures employed to curb the corona virus’s spread. Some resorted to starting their own businesses. And with the help of online business mentorship, most people have succeeded in this venture.
Unemployment rose as stock markets shrunk in turmoil. For instance, the US recorded its highest unemployment rate of 15% since the great depression. If such statistics are anything to go by, the pandemic will cause a significant decline in manufacturing work and require a long recovery.
Before the pandemic, numerous US manufacturing firms recorded an EBIT of 9% on average. Whereas the shape the crisis takes will impact the bottom-line, it will have adverse outcomes.
Currently, the manufacturing industry has recorded the lowest sales volume with a high level of revenue slump. Consequently, most manufacturing companies reported a negative EBIT in 2020. As we move to 2021, the scenario remains uncertain as the previous year’s carry-over effects continue to worsen.
Will the Manufacturing Sector Bounce Back?
Even with the severe effects of the COVID-19 pandemic, a significant number of manufacturing industries have had remarkable responses. Short-term efforts such as cash generation and organizational flexing have proved to be effective and robust countermeasures.
Most manufacturing companies’ structural and short-term liquidity measures to cushion the pandemic impacts include reductions of the workforce and discretionary spend cuts. Moreover, cash forecast and management have also been elements of focus over the past months.
Whereas such measures may offer temporary solutions, recovery is far from achieving. Manufacturing companies need to focus on changing their industrial design process accordingly and adopting structural and sustainable measures to address the pandemic’s effects.
Most of the firms that employed transformational and structural improvement approaches during past crises recorded significant performance compared to those that adopted short-term cost cuts.
Significant Measures to Return to Pre-Crisis Level
One of the fast ways of overcoming the COVID-19 crisis and responding effectively to low revenues’ current state is the deployment of robust structural performance improvement initiatives.
Manufacturing firms’ leaders should envision the position of their firms in 3-5 years. Rework on their business and operating models, and have a distinct overview of the loss and profit goals and business targets for 2021 and the future.
Deployment of levers like overhead cost reduction, optimization of footprint production, and value sourcing may help the firms respond strongly to the pandemic’s impact. Additionally, top-tier levers such as better or similar pricing mechanisms alongside an integrated governance approach would bounce back fast and strong.