White Paper How To Rebound Stronger From COVID-19 .
White PaperHow to rebound stronger fromCOVID-19Resilience in manufacturingand supply systemsIn collaboration with KearneyApril 2020
World Economic Forum91-93 route de la CapiteCH-1223 Cologny/GenevaSwitzerlandTel.: 41 (0)22 869 1212Fax: 41 (0)22 786 2744Email: contact@weforum.orgwww.weforum.org 2020 World Economic Forum. All rightsreserved. No part of this publication may bereproduced or transmitted in any form or by anymeans, including photocopying and recording, orby any information storage and retrieval system.This white paper has been published by the World Economic Forum as a contribution to a project,insight area or interaction. The findings, interpretations and conclusions expressed herein area result of a collaborative process facilitated and endorsed by the World Economic Forum, butwhose results do not necessarily represent the views of the World Economic Forum, nor theentirety of its Members, Partners or other stakeholders.
ContentsExecutive Summary4From a Regional Supply to a Global Demand Crisis6Ensuring Business Continuity and Protecting Employees – ImmediateActions to Take10Preparing for Recovery and Increasing Resilience – Initiatives to AccelerateAdopting the overall supply chain set-upDoubling down on investments in advanced manufacturing technologiesAdjusting the operating modelRedefining external relationshipsReviewing and challenging the portfolioRoadblocks14141517181919Adapting to Potential “Forever” Changes – Key Imperatives for GlobalValue Chains22Call for Action24Acknowledgements25Study Methodology273
Executive SummaryThe COVID-19 global crisis continues to disruptmanufacturing and global supply chains withsevere consequences for society, businesses,consumers and the global economy. Sincethe start of the outbreak, the global productionsystem has been challenged by factoryshutdowns, demand surges for essentialgoods, stockpiling and panic-buying, as well asshifting consumer preferences (e.g. online overphysical). This has raised new and unprecedentedquestions on the level of resilience of global valuechains and the overall approach to manufacturing.Facing up to these disruptions requires newforms of collaboration across companies andindustries to ensure business continuity whileprotecting employees and improving supplysystems resilience for the future. As global valuechains have traditionally been optimized forcost-competitiveness reasons, the COVID-19pandemic proves that companies need toreorient towards new approaches, which areprone to “risk competitiveness”. They also needto build new strategies in collaboration withgovernments to be able to adapt and respond tofuture shocks.Recognizing this need, the World EconomicForum, in collaboration with Kearney, broughttogether C-level executives from different industrysectors to identify best responses to the currentCOVID-19 crisis, in the short-term, and helpbuild resilience across manufacturing and supplysystems by incubating new business partnershipsand public-private cooperation.4The findings and conclusions presented in thispaper are the result of a consultation carriedout with 400 senior executives in operationsand supply chain management from differentindustry sectors. In particular, the paper presentsbest practices in terms of immediate actionstaken by manufacturing companies to ensurebusiness continuity and protect employees,outlines major initiatives aimed at acceleratingthe transformation of manufacturing and supplysystems by increasing resilience, and proposeskey imperatives for both business leaders andpolicy-makers to future-proof their organizationsagainst “forever changes” in global value chains.Ensuring business continuity and protectingemployees – immediate actions to takeLeaders are proactively taking action to protectemployees, ensure supply security, mitigatefinancial impact and navigate continued marketuncertainty as demand drops. Companies havemoved quickly to support suppliers (e.g. accessto advanced network simulations), ensure cashliquidity and mitigate the impact on customers(e.g. extended payment terms, shifting freightmodes) while contributing their part to society(e.g. repurposing manufacturing to produceessential goods).Preparing for recovery and increasingresilience – initiatives to accelerateCompanies are already focused on preparing forthe post COVID-19 scenario while drawing keylearnings from this pandemic and its impact onglobal businesses. Leading multinational companieshave already launched strategic initiatives to createmore resilient supply chains before the on-goingcrisis and are now seeing an acceleration of thespeed and determination of implementation.
Senior operations and supply chain executives arefocusing on five key areas to increase the resilienceof their manufacturing and supply systems:1. Adopting the overall supply chain set-up bycarefully managing interdependent leverssuch as dual sourcing, complexity reductionand localizing2. Doubling down on investments in advancedmanufacturing technologies that wereattributed an essential role in ensuring aquick reaction to the crisis3. Adjusting the operating model to allowfor a more flexible and decentralizedmanufacturing organization with a consistentrisk management system in place4. Redefining external relationships andcapturing new opportunities from crossindustry collaboration models5. Reviewing and challenging the productportfolio to reduce complexity and refocus onkey strategic directionsAdapting to potential “forever” changes – keyimperatives for global value chainsThe long-ranging impact of the COVID-19pandemic is yet to be understood. A number ofindustry sectors have been severely impactedand there are changes to daily life, accelerated bythe pandemic and supported by technology andinnovation, which companies will need to adapt to.Five consistent key imperatives emerged forleaders to ensure the long-term success ofmanufacturing and supply systems:Way forwardThe impact of COVID-19 on global value chainsrequires strengthened global cooperation. TheWorld Economic Forum’s Platform for Shapingthe Future of Advanced Manufacturing andProduction, in collaboration with Kearney,will continue engaging leaders acrossdifferent industry sectors – from healthcareand automotive, to consumer goods andtransportation and logistics – as well asgovernments, academia and civil society tounderstand industry-specific needs and developcollective action plans aimed at strengtheningmanufacturing and supply chains resilience. Inparticular, the Platform will continue its ongoingwork, which includes:– Collaborating with the Forum’s Industrycommunities (such as automotive, health,transport and logistics, consumer), andtranslating the five key imperatives presentedabove into specific actions tailored to theneed of each industry sector– Supporting businesses and governmentsto upgrade manufacturing and investmentstrategies, and updating industrial policies– Providing a platform for discussion andknowledge sharing among leaders inmanufacturing and supply systems– Integrating, aggregating and amplifyingexisting collaborations and global initiativesthat support the reconfiguration of globalvalue chains while delivering value tobusinesses, society and the environmentFigure 1: Key imperatives for global value chainsRapid tailoring ofmanufacturing andsupply systems tochanging consumerbehaviourAgile manufacturingand supply systemset-ups enabled byadvancedtechnologyLogisticscoordination acrossand within globalvalue chainsAdoption of newShared responsibilityand collaborationways of working andamong companiesgoverning toand authorities toincreaseaddresssocial andmanufacturingenvironmentalresiliencechallenges5
From a Regional Supply toa Global Demand CrisisThe COVID-19 outbreak has disruptedmanufacturing and global value chains, posingsevere challenges to businesses all over theworld. The world has seen similar disasters –SARS crisis in 2003, tsunami disaster of 2004,Global Financial Crisis in 2008 – but COVID-19 isdifferent. Here is why:1– It is a global crisis: The virus spread to allcontinents in a few short months, creatinga shockwave of disruption that left little timefor preventative or remedial action by localeconomies and societies– All major economies are affected: Previouscrises have typically been concentrated inone sector, or one region, but COVID-19 is aglobal crisis that has impacted over 75% ofthe world’s global manufacturing outputs– High interdependency in global trade: Theincreased globalization of value chains meansthat any disruption is amplified, and recoveryis more prolongedMitigating the impact of COVID-19 on globalsupply chains is too big and too urgent for anysingle entity to address alone. Manufacturingand supply systems are challenged by factoryshutdowns and difficulties with logistics, whilecustomer demand surges for essential goodsamidst mass stockpiling and a dramatic shiftaway from in-store shopping to online homedeliveries. This rapid disruption to both supplyand demand requires new approaches,knowledge-sharing and collaboration acrossindustries to ensure business continuity, protectemployees and improve resilience of supplysystems for the future.Optimizing for cost-competitiveness is nolonger enough and companies will need toreorient towards new approaches, such us“risk competitiveness”, in the future. This iswhy the World Economic Forum’s Platform forShaping the Future of Advanced Manufacturingand Production, in collaboration with Kearney,has gathered senior operations and supplychain executives and other top leaders fromgovernment, academia and civil society to:– Understand the impact of COVID-19 on globalvalue chains– Share best practice examples of how leadersare reacting to current disruptions to mitigaterisks and build resilience in the long term– Explore potential collaboration opportunitiesacross industries and value chains (in a precompetitive space) and new public-privatepartnerships to jointly address current andfuture disruptionsThe companies that will prosper in a postCOVID-19 world are those that are alreadypreparing for recovery, by drawing key learningsfrom this pandemic and its impact on globalbusinesses and strengthening their supply chainsaccordingly. For better or worse, COVID-19 isaccelerating the evolution of manufacturing andthis paper aims to inform a better transition.The following logic of the three-point reasoning is inspired by the chapter “Thinking ahead about the trade impact of COVID-19” by Richard Baldwin andEiichi Tomiura in Economics in the Time of COVID-19, 16
MethodologyThe state of COVID-19 disruption on globalvalue chainsThe World Economic Forum, in collaboration withKearney, has conducted structured interviewswith more than 30 senior executives acrossindustries. In addition, 400 senior supplychain executives from across Asia, Europe andUS – between 30 March and 17 April 2020 –were surveyed to understand the actions takento mitigate the COVID-19 crisis, their level ofpreparedness for recovery and perspectives onhow the crisis will permanently affect the industry.While global multinationals started sensing thedisruption on the supply side with the emergenceof the crisis in China in early January, mostexecutives surveyed indicated that they wereslow to respond to initial supply side disruptions,but the impact has been thorough. When asked,global respondents rated their businesses anaverage of 7 out of 10 in terms of how the crisisis disrupting their companies’ supply network,Figure 2: State of COVID-19 disruptionHow is COVID-19 affecting your organization on the demand versus the supply side?(n 369)Demand-side disruptionSupply-side disruption1%2%2%12%4%24%33%5%12%0 - low3%4%6%48%5 - moderate11%617%21%729%28%814%12%99%10 - high4%7
Figure 3: Adaption to COVID-19My supply chain network and organization has adapted well to the impact of COVID-19(1 – low, 5 – moderate, 10 – high; n 369) 48%7,45,85,75,0 10bn USDØ 5.44,8 10 - 50bn USD 50 - 75bn USDincluding suppliers and manufacturing centres.Furthermore, the respondents scored theirbusinesses an average of 5 out of 10 whenasked how well they had adapted to the impactof COVID-19.The much more severe disruption resulted fromthe demand side with European and NorthAmerican countries enforcing strict measures tocontain the virus. Enforcing policies to shutdownmanufacturing of a lot of non-essential productsubsequently also increased the supply-sideshock. The severity of the impact is reflected inthe survey results where more than 80% of surveycompanies are indicating a moderate to highimpact on both either demand or supply side.While companies overall felt their supply chainnetwork and organization adapted moderatelywell to the crisis, smaller companies scored8 75 - 100bn USD 100bn USDthe response of their supply chain networkand organization 48% lower than did largecompanies. This echoes statements from ourstructured interviews where large companieswere able to leverage their investments in supplychain visibility processes to mitigate somenegative impacts. Additionally, several executivesmentioned that size matters in negotiating forscarce supply.From an industry perspective, the automobileindustry appears to be one of the most impactedby COVID-19 on both the demand side(respondents in this industry felt a high impact– 7.9 out of 10) and the most disruption to theirsupply network (7.3 out of 10; 6.6 average) andwere the one of the least likely to think they haveadapted well to COVID-19, scoring themselvesonly 4.3 out of 10.
Firms in the auto industry are far more likely tohave enforced mandatory working from home,with 61% already remote working, comparedto the 40% industry average. In the event of aprolonged crisis, and likely due to existing homeworking, they are nearly twice as likely to closeoffices and other facilities (33% compared to18% average).By contract, communications, media andtechnology firms are the most likely to considerthemselves well-adapted to the COVID-19 crisis,with firms scoring themselves an average of6.2 out of 10, compared to the wider industryaverage of 5.4. Perhaps unsurprisingly, thesefirms are the most likely to be using newgeneration data and technologies to supporttheir supply chains, with firms scoring themselves7.7 out of 10, compared to the wider industryaverage of 6.1. That said, almost 40% (39.5%)think that adapting to and embracing newtechnologies is their biggest challenge intransforming their operations.Unsurprisingly, consumer industry-related firmsare more likely than average to enforce themandatory wearing of COVID-19 protectiveclothing (57% compared to 51% average). Theyare also one of the least likely sectors to offertheir employees advice or support on managingtheir mental health, at 11% less than the widerindustry average (only 36% of firms are comparedto 47%). When it comes to working withsuppliers, over half (51%) of consumer and retailfirms are advancing payment to their suppliers toease pressure and facilitate upstream production,and a similar number (47%) are guaranteeingpurchase of supply to mitigate the immediateimpact down the supply chain.Only one in five (20%) consumer industry firmsbelieve that their demand planning is currentlyeffective and dealing with the challenges ofCOVID-19, and over a third (38%) want toleverage new technologies such as the Internet ofThings (IoT) and artificial intelligence (AI) differentlyto better prepare for future supply chaindisruption. Despite this, one in eight (12.5%) firmsis not planning on taking any additional actions inthe event of a prolonged crisis.Finally, health is one of the sectors that considersitself best adapted to COVID-19, with firmsscoring themselves 6.1 out of 10 compared tothe wider industry average of 5.4. When it comesto their workforce, almost half (45%) of healthfirms have offered their staff voluntary unpaidleave. Unsurprisingly, health firms are the leastlikely to close their premises in the event of aprolonged crisis, due to the critical nature oftheir work at this time (only 9% agreed). Surveyresults indicate that supply chain managementhas been a clear hurdle for healthcare firms. Half(50%) intend to change the suppliers they workwith in the event of a prolonged crisis, and over athird (35%) agree that they would fundamentallychange their supplier management to betterprepare for future supply chain disruption. Aquarter (26%) are struggling with the design oftheir supply chain processes/networks during thecurrent crisis.9
Ensuring BusinessContinuity and ProtectingEmployees – ImmediateActions to TakeIn the immediate response to the crisis, leadershave been taking proactive and urgent actionsto protect employees, ensure supply security,mitigate financial impact and navigate continuedmarket uncertainty driving down demand.Leading companies have acted quickly to ensurebusiness continuity and protect employees whileat the same time trying to stay agile to dailychanges. In addition, companies have movedto support suppliers (e.g. access to advancednetwork simulations), ensure cash liquidity andmitigate the impact on customers (e.g. extendedpayment terms, shifting freight modes) whilecontributing their part to society (e.g. repurposingmanufacturing to produce essential goods).A company’s number one priority is to protectits workforce, which is reflected by all surveyedcompanies indicating taking actions as displayedin Figure 5. To ensure this, they are takingvarious measures such as executing strictsecurity protocols (e.g. health screening forms,temperature checks), implementing home-workingpolicies, rigorously pushing travel restrictionsand visitor bans, making wearing of protectivegear mandatory, or providing shuttle servicesfor employees. Key success factors for all thesemeasures are clear communication, providingrequired infrastructure and related trainings, andconsistent policies across the organization, whichall still leave room for regional adjustments.As outlined in the previous section, companiesperceived the initial supply disruption triggeredby COVID-19 as severe, but most of them wereable to handle it. However, there are largerconcerns around the demand shock; companiesare still not certain about how severe the shockwill be and how long it will prevail. Despite thisuncertainty, senior operations leaders have clearpriorities and action plans to respond to thisglobal value chain disruption.In the survey results, differences across howcountry organizations have responded areevident. For example, 60% of UK firms havemandated the use of COVID-19 protectiveworkwear while only 25% in Germany and 44%in France have. With increased public discussionaround well-being, firms seem to be also puttingmore emphasis on mental health. Again, countrydifferences are stark with sizeable majority (73%)of Indian respondents said their companieshad offered advice on mental health during thecrisis, considerably more than the Australianrespondents at just 20%.Our study revealed a set of responses to theCOVID-19 outbreak, which mitigates risks andpotential bottlenecks along the entire value chain,as displayed in (See Figure 4).10
Figure 4: Immediate actions to respond to COVID-19Dominant COVID-19 response themes across the value chainPlanCross-functionalcontrol towers –detect potential blindspots and ensurequick reaction timesSourceSupplier supportprograms – e.g.helping suppliers tofind required workforce to ensureongoing supplyMakeDeliverConsumeAsset/capability redeployment – e.g. repurposing of production lines orshifting assortment priorities to ensure supply of high demand goodsPivoting freightmodes – e.g.leveraging air freightto mitigate potentialdelays/bottlenecksCustomer supportprogrammes – e.g.open communicationon COVID-19impacts or extendedpayment termsEmployee protection – shift ways of working (e.g. remote workstation, shift plans, safety protocols) toprotect employee healthI
COVID-19 Resilience in manufacturing and supply systems April 2020 White Paper . for a more flexible and decentralized manufacturing organization with a consistent risk management system in place . manufacturing and supply systems: Rapid tailoring of manufacturing and supply systems to
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