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Industry Pulse: Manufacturing Sector Impacts of COVID-19 Pandemic

June 24, 2020 Scott McNeil-SmithIndustry News and Events 2189 Views

The Global COVID-19 Pandemic has decimated our economy and has caused severe disruptions to all facets of life and business. In the early stages, much was unknown and the first reaction to contain the situation was to shut down all activities and contact.

The nature of these impacts on business: from local staffing, safety and physical distancing concerns, to maintaining the ability to meet customer needs, to more global supply chain and export concerns needs to be looked at in order to respond.

Current State:

To provide a clearer picture of the impacts, issues and challenges being experienced by the manufacturing sector, over the past several weeks, EMC has reached out to manufacturers across Canada, asking short ‘INDUSTRY PULSE’ questions about the current state of the sector and the impacts of this pandemic are having on their business. 

Response has been tremendous. In just the past few weeks, EMC has taken the ‘pulse’ of over 600 manufacturing employers, who have shared their plans, needs, issues and challenges:

What are Your Most Pressing Concerns / Challenges?

Source: ManufacturingGPS – Industry Pulse Study (May 28, 2020)

In the early stages, more than 60% of manufacturing firms had or were planning to layoff significant percentage of their workforce. In addition, many were closing entirely.  Over the past several weeks, EMC has noted a big shift in this activity.

Despite the massive disruptions still existing across Canada, with most manufacturing sectors deemed essential, over 67% of respondents are now reporting production at full capacity (no layoffs) and 30% of the total indicating they are in the process of growing their workforce in addition (hiring).  Worker willingness to return to work is a current challenge noted.

Looking at only Very Concerned + Extremely Concerned numbers, traditional top business issues rise higher in ranking:

1) Health of Employees; 2) Supply Chain; 3) Production; 4) Customer Demand / Sales; 5) How Manage Workforce Safety

Pre-COVID Issues Affecting Manufacturing:

As part of its national ManufacturingGPS labour market studies, EMC also reaches out to senior manufacturing executives and management to put context to the LMI data collected.

Pre-COVID, participating firms indicated the most significant issues they were anticipating were skills shortages and cost control.

Skills shortages (broken down into both the lack of specific skills, and the lack of available people with any skill set) was having a significant impact on the manufacturing sector’s ability to be fully productive, as was showing in the 80% national capacity utilization and the $98.1 billion in unfilled orders.

While sales were also down during this period, EMC heard from many manufacturers that they were turning down new orders due to an inability to fill them!  Challenges in staffing as indicated in the LMI, are having a direct economic impact on key performance indicators.

EMC’s ManufacturingGPS LMI also shows the specific challenges on attracting and retaining a competitive workforce, beyond the availability of talent. Turnover rates, competitive wage packages and local infrastructure such as transportation all play a role and vary throughout the country.

What is Your Workforce Management Plan for the Next Four Weeks?

Source: ManufacturingGPS – Industry Pulse Study (May 28, 2020)

This evolving shift towards a return to full productivity is happening rapidly. As with any economic recession, the steps to recovery includes several business factors not entirely related to the root cause (ie COVID-19), such as (but not limited to):

  • Maintaining and growing customer base / sales
  • Securing a stable supply chain
  • Ensuring staffing levels, skills and workforce supply
  • Short and long-term cashflow
  • Restoring productivity systems and processes
  • Health and Safety Protocols for restart

Understanding ‘when’ this reset will happen is also critical to this planning, so we asked:

If you previously furloughed workers, will you be recalling any in the next four weeks?

Prior to COVID-19, the top issues affecting Canadian manufacturers (as researched in EMC’s annual senior plant management study and published in PLANT Magazine) were:

  1. Skills Shortages (including skill sets and staffing shortages)
  2. Costs of Manufacturing (ie payroll, energy, raw materials etc.)

In the current list of concerns / challenges, these items are still present, just further down the list. As we return to the ‘new normal’ these issues will re-emerge and need to be considered as part of any recovery plan.

Source: ManufacturingGPS – Industry Pulse Study (May 28, 2020)

The shortage of workers (with the appropriate skill sets and attitudes towards working in industry) is a competitive disadvantage for manufacturers and will return as a critical concern when recalling workers.

Manufacturers need help to do this… to return to productivity, recover from this pandemic recession and implement the ‘new normal’. EMC is working hard to provide the resources, tools and solutions to help.

In the double-dip recession of 2008 and 2009, EMC noted manufacturers who had used the downturn as an opportunity to improve their businesses – plant, people and processes – expanding capabilities and markets, were the quickest to capitalize on the return of the market that followed.

Those who elected to maintain the status quo were affected significantly and many lost customers, market share or closed entirely.  As with any economic recession, this will no doubt have an impact again. 

EMC has drawn a direct correlation between the reality, issues and manufacturing workforce challenges, (measured by LMI) and the direct business, economic and community impacts that result. Utilizing real-time evergreen LMI has enabled many manufacturers to map, plan and forecast their future workforce strategies.

To determine what industry activities are underway, we asked:

How are You Engaging Your Workforce During the Pandemic?

Many of the companies experiencing disruptions are also using this time to prepare for ‘what’s next’ and to come out of this pandemic recession even stronger than before. 

Source: ManufacturingGPS – Industry Pulse Study (May 28, 2020)

We have also learned through on-going conversations with industry, many of the companies experiencing disruptions are also using this time to prepare for ‘what’s next’ and to come out of this pandemic recession even stronger than before. 

Response Indicators

Sector:

 

Size of Company:

Source: ManufacturingGPS – Industry Pulse Study (May 28, 2020)

 

Future State:

While not alone, Canada’s manufacturing sector has been hit hard and some sub-sectors were affected more than others. Although all manufacturers are considered critical businesses, those with customer chains which supply construction, restaurants (equipment and food) and lower tier automotive (for example) where hit much harder by shutdowns.  

Many industries with both consumer and commercial/professional customers experienced a mix of impacts. For example, in the food and beverage sector, EMC heard from its audience that many had consumer-side sales increases of upwards of 30%, however their commercial-side sales (ie restaurants and public venues) are down significantly.

Whether the upside will offset the downside, we won’t know until Q2 and Q3 sales numbers are available, indicating whether the impacts are greater than early results indicate. There could be more hits to come.

Focusing on the manufacturing sector as a whole, the steps to economic recovery for a recession are the same whether the cause is from a pandemic, disaster, market adjustment or other factor. Economic impacts affect labour market realities and vice versa.

While there are many underlying items driving manufacturers, during an economic recovery these require a few overarching considerations essential to all business sectors, including:

  1. Are your customer needs being met? (ie Do you have sales?)
  2. Are your supply chains intact? (ie Do you have the necessary raw materials, supplies and services?)
  3. Are your productive capabilities intact? (ie Are you able to fill orders/sales? Is your workforce able to work? Are you utilizing your capacity?) This is where real-time, evergreen LMI plays an extremely important strategic role.
  4. Are your distribution channels intact? (ie Are you able to deliver the filled orders/sales? For businesses with a high percentage of exports, will international restrictions affect your ability to deliver on customer needs?)

If the answer to any of these items is ‘no’, all other business and operational considerations that draw from this will enable business to function.

While the situation is still perilous, there are some positive signs:

  • Most manufacturers are at or are returning to full production
  • Firms who have maintained the above four items are ready to go
  • Furloughed workers are being recalled at an increasing rate (note there are challenges in return-to-work)
  • Many firms continue to use this time to upskill, reskill, retool and engage continuous improvement activities

This is consistent with the 2008/2009 recession… manufacturers who used the downtime to ramp up, were well ahead of those who simply waited for the market to return.

Regardless of the current support programs available, SME’s have told us they have a small window to recover before their cash, credit and other resources run out: they are estimating 3 to 4 months.

EMC’s Recommendations for Manufacturing Sector Recovery:

While most provinces are advancing stages towards reopening the economy, industry needs help with recovery plans, process, and resources to get there more rapidly. Respecting health & safety requirements, by supporting industry sectors to rapidly restart and recover, all of Canada will benefit.

  1. Ensure Canadian manufacturers have the best real-time, evergreen LMI and strategic operational data to make informed decisions.;
  2. Make sure industry is focusing on customer needs (sales), supply chains, productive capabilities (workforce and capacity) and distribution channels (order fulfillment);
  3. Provide manufacturing with subject-matter-expertise, coaching and mentoring for the steps to recovery – including resources supporting employers, workers and senior leaders;

By assisting manufacturers in these areas, supported by solid LMI and the expertise to apply it, we will minimize the future impacts of the pandemic on Canadian industry. The result will be a more rapid return to ‘normal’, however whether the new normal (future state) resembles the pre-COVID normal state is still to be determined.

Next Steps:

Over the next several weeks, EMC will be continuing our virtual Industry Pulse update sessions for manufacturers, stakeholders, community and government partners. In addition, we will also be reaching out to firms for the next round of ManufacturingGPS Industry Pulse – focused on the way forward.

For more information or to participate, simply click the link above or feel free to contact me directly.

Cheers,

Scott McNeil-Smith

Vice President, Manufacturing Sector Performance

Excellence in Manufacturing Consortium (EMC)