by Jason J. Woldt
Supply chain disruptions are the most pressing threat for modern day manufacturing firms[1], and the shock caused by the novel coronavirus is no exception. With the share of manufacturing jobs in the state of Wisconsin twice the national average[2] [3], the manufacturing industry is the backbone of employment and financial prosperity for many regions of the state. Throughout the state of Wisconsin, the virus continues to subdue overall consumer demand, deplete business cash reserves, and pose a significant health risk for the general public. Wisconsin manufacturing firms must make difficult tactical and strategic decisions quickly in order to operate effectively in this turbulent environment while adhering to the rapidly changing state orders and federal guidelines.
The Wisconsin Economic Development Corporation (WEDC) distributed a survey on April 1, 2020, to businesses throughout the state and 126 manufacturing firms responded by sharing information about how the coronavirus has impacted their businesses. The sample consists of responses from a mix of small- and medium-sized manufacturing firms[4] from a variety of industries across 40 Wisconsin counties. Not surprising, the data clearly show that the virus is impacting firms differently. Below I will summarize some of the themes that emerged from the survey and reflect on what I would consider to be the good, the bad and the ugly.
The Good
As of the survey response dates (April 1-7), almost half of the manufacturing firms responding to the survey (48%) stated that they had not made any changes in payroll or workforce. In fact, 12% of total respondents saw an increase in demand for their products. Unfortunately, some 26% of firms surveyed had implemented a temporary cut in hours while 35% of firms had implemented furloughs or temporary layoffs. Fortunately, only 3% of respondents had laid off employees permanently[5]. While every reduction in work and every job loss is concerning, these numbers appear to demonstrate a strong willingness and resilience of many Wisconsin manufacturers to maintain their workforces at the time of the survey.
The Bad
The impact of the coronavirus already is having a negative impact on profitability for many firms. Not surprising, some 44% of respondents had experienced unexpected operational costs that negatively impacted profitability. Unfortunately, the data also suggest that the impact to profitability could be even more severe and longer in duration. The data show that 48% of respondents indicated that they are buying fewer goods/supplies/ services, and 23% of respondents indicated that they had fallen behind on payments. These actions likely will have a ripple effect throughout supply chains, negatively impacting the future profitability of many firms not negatively impacted today.
The Ugly
Most concerning is the level of uncertainty in respondents perceived ability to continue as viable businesses into the future. When asked how long respondents felt the firm could remain a viable business, 24% of respondents offered a timeframe of less than three months while 25% of respondents stated that it was “impossible to say” given the uncertainty. The data shows that an extended disruption is equally devastating for both small- and medium-sized manufacturing firms. More specifically, size does not appear to ensure long-term viability in this uncertain business climate.
Current research in supply chain management shows that operational flexibility and agile supply chain strategies are enablers of supply chain resilience[6]. Below are several excellent anecdotal cases found within the WEDC manufacturing survey data illustrating how small- and medium-sized manufacturers are capitalizing on their flexible and agile operations to ensure resiliency and survive in the long-term.
- Shifting to manufacturing “essential” products[7]– Firms have shifted their operations from manufacturing products considered non-essential to manufacturing products considered essential, allowing them to continue to operate and maintain their workforces.
- Utilizing excess capacity- Operating with excess capacity comes at a cost, but firms with excess capacity have been able to expand operations to multiple production shifts, allowing for more social distancing across the factory floor.
- Utilizing cloud-based services- Cloud-based services have enabled a better transition for employees to be able to work from home. This will minimize the productivity drop as employees have adequate access to critical operating and planning systems.
- Offering flexible policies for supply chain partners- Several firms have temporarily implemented more flexible ordering policies and payment terms for supply chain partners. Manufacturing firms must be aware of the threats that supplier and customer vulnerability pose to their operations.
- Leveraging supply chain visibility to scale operations- Systems and processes that firms have put in place to extract and share data with supply chain partners are proving to be of significant value in their ability to make decisions. Upstream and downstream visibility of inventory and demand-sensing strategies provide firms with the critical insight they need to make decisions about how to scale operations.
This unprecedented situation clearly is challenging for many Wisconsin manufacturing firms. The current climate provides the opportunity for many businesses to assess their level of preparedness and ability to adjust quickly. The WEDC survey data and information offers evidence to suggest that firms taking measures to execute on operational flexibility and agility will be able to mitigate some of the negative impact to their businesses and emerge from the crisis as more resilient manufacturing firms.
Dr. Jason J. Woldt is an Assistant Professor of Supply Chain Management in the College of Business and Economics at the University of Wisconsin–Oshkosh, 800 Algoma Boulevard, Oshkosh, WI, 54901, email: woldtj@uwosh.edu
[1] Craighead, C. W., Blackhurst, J., Rungtusanatham, M. J., & Handfield, R. B. (2007). The severity of supply chain disruptions: design characteristics and mitigation capabilities. Decision Sciences, 38(1), 131-156.
[2] Bureau of Labor Statistics (updated April 10th, 2020). Economy at a Glance: Wisconsin. https://www.bls.gov/eag/eag.wi.htm
[3] Bureau of Labor Statistics (updated April 3rd, 2020). Current Employment Statistics – CES (National). https://www.bls.gov/web/empsit/ceseeb1b.htm
[4] Number of Employees: median= 26 mean= 86
[5] The numbers total over 100% because some firms made more than one change.
[6] Gligor, D., Gligor, N., Holcomb, M., & Bozkurt, S. (2019). Distinguishing between the concepts of supply chain agility and resilience. The International Journal of Logistics Management.
[7] Department of Homeland Security (March 28, 2020). Guidance on the Essential Critical Infrastructure Workforce https://www.cisa.gov/publication/guidance-essential-critical-infrastructure-workforce#download