Traditionally, December is the month of looking back and looking forward. This time, we look back at a very special year. The initial panic caused by the corona crisis is far behind us, and we have become accustomed to restrictive measures. We have experienced the economic impact first-hand. Now it is important to look at underlying changes as well as their impact. Based on the confidence that this crisis too will pass and that things will be fine, but probably not in the same form as we were used to.
This blog covers the key developments within the manufacturing industry as a result of the current corona crisis. The huge economic impact, about developments in the supply chain and about trends that are accelerating or being reversed precisely under the influence of corona.
Economic impact
The direct economic impact of corona depends heavily on the market segment in which you operate. In the automotive and aerospace sectors, for example, there has been a drop in sales of tens of per cent this year and therefore also for suppliers to those markets. The recovery will also take several years for both sectors before we get back to pre-corona levels. Especially in aviation. Of course, this also has a major impact on derived demand; after all, fewer passengers means fewer and delayed orders for new aircraft and parts needed for them.
In other sectors, the economic impact is actually very positive. In the medical market, for example, there has been growth of tens of per cent for respirators, scanning devices and personal protective equipment for treating corona patients. This, of course, has also been very positive for suppliers of components for these.
There are also market sectors that are getting through it neutrally or with limited growth, such as high-tech mechanical engineering. All in all, for the Dutch industry as a whole, there is still a turnover decline of around 5 to 6% this year.
Developments in the supply chain
Of course, further robotisation and automation of production in the manufacturing industry has been going on for some time. With the aim of increasing output, reducing dependence on high labour costs and circumventing the scarcity in good skilled workers. This development seems to be accelerated by corona in favour of sick staff and the restrictive measures for keeping them at bay.
This is offset by the return of manufacturing to Western Europe. In recent decades, much production has moved to low-wage countries. Especially in the first corona wave, there were sometimes major problems in the supply chain from those countries, causing production and factories to grind to a halt here. In the future, you want to avoid becoming too dependent on a long and complicated supply chain. Especially when it comes to critical products and equipment (e.g. medicines, medical devices). This "reshoring" is really becoming a strategic agenda item for many end producers.
The same applies to building up strategic stocks of raw materials, parts and products, also to reduce dependence on suppliers far away.
The impact of this on suppliers can be very significant. Customers fall away as they look for suppliers closer by, for greater delivery reliability and a more robust supply chain. The reverse also applies, of course. There will also be opportunities for a supplier to be closer to a new customer than its current suppliers.
Trends in the market
Besides the economic impact and supply chain developments, there are also certain trends that are accelerating due to corona and could have a major impact on suppliers in the manufacturing industry.
For instance, requirements for hygiene, food safety, etc. are expected to become even more stringent. Also driven by the corona virus.
But also changes in consumer behaviour, such as (even) more online orders, more working from home, more sensible and healthier eating offer opportunities for new products and services.
Several European countries are also stimulating economic recovery from the corona crisis with targeted policies such as further sustainability. This will lead to new investments and opportunities in battery technology and energy storage, among others.
Strategy formation
So there are quite a few developments as a result of the corona crisis that you need to take into account as a supplier. A good time, therefore, to start working on your strategy. Important questions to ask yourself while doing so are mainly these:
- What is your current position and role in the chain;
- What are possible shifts and changes in the supply chain;
- What is happening in your end market;
- What is the economic impact;
- What trends do you see there?
The importance of this is also evident from recent assignments in which we helped clients in the manufacturing industry with strategy development. The impact of corona proved big and obvious, but fortunately new opportunities and possibilities also emerged.
Our message for 2021 is to "stay healthy as well as decisive." So map out the impact of corona on your business as a supplier, not only for now, but also for the longer term.
Copyright: Thijs Jaarsma, Jaarsma + Lebbink
