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Changes in the manufacturing industry post-Covid-19 may surprise you

By: Steven Boender, Portland Business Journal

As we enter the seventh month of business interruptions as a result of Covid-19, the chatter in the manufacturing community has turned from, “What short-term changes do we need to make to adapt to the current environment?” to, “What, if any, permanent changes or trends do we expect to rise out of the current crisis?”

While the trade publications offer bold prognostications that things will never be the same, a measure of caution should be read into any of these predictions. The pandemic may in fact bring about sweeping, and lasting, changes to the way manufacturers operate their facilities, but there is an equal, if not greater, likelihood that changes will be relatively minor compared with what some predict.

A common assumption is that the pandemic will lead manufacturers to reassess and further enhance their transitions to automation. The thinking being, if machines can’t get sick, when the next pandemic (or other similar event) hits, we will continue to turn out widgets at the same pace. This thinking is flawed for a few reasons. In the first instance, our collective memories are short; lessons learned by players in finance and banking during the global financial crisis were largely cast aside once a level of normalcy returned and balance sheets regained their strength.

Second, a key value proposition of manufacturing automation is that machines are cheaper than human labor. But in an environment of record-high unemployment, wage deflation is likely on the way, if not already here. The lower wages will erode the value proposition of what is typically a substantial upfront investment required by implementation of automated solutions. That isn’t to say the constant march toward automation will slow down, but rather that the pandemic is unlikely to materially increase spending on these projects, especially in an uncertain economic environment.

Another common refrain is that manufacturers with global supply chains will rethink their use of “just-in-time” procurement. To the uninitiated, “just in time” (or JIT), broadly simplified, means that inputs to production (raw materials, subcomponents, etc.) are received from suppliers at the moment they are needed on the factory floor.

The benefits of this system include essentially eliminating storage/warehousing costs, and providing the manufacturer with flexibility as demand waxes and wanes. The downside, which we are seeing now, is that when one or more elements of that supply chain are hobbled by a pandemic, the whole system grinds to a halt until those elements are back online. The theory goes that if manufacturers would have had more raw materials inventory available at the time the pandemic hit, they would have been better equipped to keep the lines moving once it did.

However, a step back from JIT would require a sea change in the way global manufacturers operate. Contracts would have to be renegotiated, there would be a massive need for turnkey warehousing facilities, and costs would invariably go up in a meaningful way. Those downsides, when factored against the likelihood that the Covid-19 pandemic is a once-in-a-century event, make it very unlikely that a critical mass of manufacturers will deviate from JIT conventions in any real fashion.

The one category of manufacturers that may see some substantial changes is meat processing. As currently conducted, meat processing is nearly impossible to do in a socially distanced manner. The processing plants require large numbers of people, working closely together, to operate. The longer the pandemic drags on, and assuming it will be at least another year before a vaccine with herd-immunity-producing efficacy will be available and widely distributed, meat processors will be at constant risk of outbreaks and disruptions for the foreseeable future. As a result, investments in plant configuration and automation make more financial sense in meat processing than in other sectors.

In these times, it is a fool’s errand to predict what the world will look like in a week, so long-term predictions are the very definition of speculation. However, it seems unlikely that the pandemic will spur sweeping changes in the way manufacturers operate.


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