Since the COVID-19 outbreak began, manufacturing facility shutdowns and transportation restrictions have impaired entire regions and countries around the world. With 50 percent or more of staff members working remotely or out sick in some regions, implementing an operational resilience strategy is the only way to ensure your organization will survive.
The pandemic is just the latest example of an unexpected event disrupting manufacturing operations globally. Extreme weather events, political protests, cyberattacks, transport strikes, economic upheaval, or infrastructure damage can cause similar problems. The catastrophic 2011 Tōhoku earthquake and tsunami, for example, meant that Toyota, General Motors, Nissan, and other companies in the motor vehicle supply chain were unable to import or export needed parts and had to close facilities in Japan and the U.S.
That’s why manufacturers need to focus on developing resilient operations.
What Does This Mean?
Resilience allows an organization to keep generating profit through cyclical and structural changes in supply and demand. In a crisis, revenue and cash levels often fall faster than expenses. To illustrate, McKinsey studied approximately 1,000 public corporations from various industry sectors to determine how well they fared during the 2008 financial crisis. It discovered a stark difference between resilient and non-resilient organizations.
- Resilient companies had lowered their operating costs by one percent by quarter one of 2008; in contrast, the operating costs of their industry counterparts continued to grow.
- Resilient companies’ earnings had risen 10 percent by 2009, while their industry counterparts had lost almost 15 percent.
- By 2017, the typical resilient company had a 150 percent lead in cumulative total return to shareholders compared to their non-resilient peers.
Because the resilient organizations took decisive action to cut their operating costs early, they had better access to cash. How did they use it? To nurture relationships with important customers through the economic slump and acquire assets and companies from unstable competitors as recovery began.
To create more operational resilience at your own company, start with these steps.
1. Digitization as a strategic advantage. Getting ahead of a significant disruption is a daunting challenge, and as so many manufacturers have realized, digitization is one of the best ways to build operational resilience. Real-time data and artificial intelligence insights can alert organizations to upcoming disruptions and how they will affect demand, supply, and capacity.
For example, a digital supply chain management platform monitoring thousands of data sources in real time can tell users where a supply chain disruption may occur and how it could affect their business.
Analyze your supply chain, manufacturing, and warehousing operations to see where digital technologies like the Internet of Things and AI can help your teams work more efficiently. Once you’ve found where you want to digitize, pinpoint the specific functions you want your digitization to serve. Setting this strong, clear framework from the outset can help keep efforts focused — thereby preventing scope creep and making sure the data you gather can be used effectively.
2. Take a proactive approach to machine health. Even among manufacturers that are digitizing operations, one crucial type of data is often missing: data on the health of manufacturing machines. When critical machines fail, production grinds to a halt. Yet most manufacturers have no visibility into the current health status of their machines and how to improve it. That’s a huge blind spot and one you can’t afford to have during a crisis.
Identifying potential machine issues, mitigating risks, and acting upon the data can reduce or eliminate costly downtime. If outsourcing machine health, look for partners that will deliver machine health as a service rather than as a transactional good. It’s also helpful to have a partner with cloud computing capabilities to ensure machine data can be routed to any internal stakeholder who needs to see it at any time. It’s important that both people on the factory floor and those in the corporate offices can access machine data so they can establish a collaborative mode of work that’s critical for modern operations.
3. Develop a plan for both increases and decreases in demand. In February 2020, consumers began to hoard tissue paper. An Augury paper customer sold 63 million tissue rolls in the U.K. for two weeks. During the same period in 2019, the company sold 24 million rolls. What’s more, one of our bottling customers told us that its peak season usually starts in April. In 2020, it started in February.
How are manufacturers managing these wild increases in demand? With a strong machine health program that maximizes uptime and productivity, they can meet demand, improve the accuracy of their production forecasting, and decrease scrap and waste by reducing the mean time between failures.
To mitigate the damage during these drops in demand, companies should focus on cutting downtime costs, machine maintenance costs, and spare parts inventory. Digital machine health data can inform you which machines or lines to shut down in periods of low demand to keep expenses down. You can also use those lull times as an opportunity to perform maintenance on other machines and prepare lines to become more efficient in the future.
4. Make sure your workforce can still be effective when reduced and remote. In a pandemic, more than 40 percent of maintenance, reliability, and operations staff may be out sick for extended periods of time, according to Gartner.
How can a plant continue to operate without all of its workers? Continuous machine monitoring and diagnostics provide the answers. Monitoring machines continuously and remotely provides the data you need to make informed decisions quickly. Machine health also eliminates unnecessary machine maintenance tasks and allows staff to collaborate remotely with each other and external experts.
By being connected and analyzing the same type of data even when remote, these parties together will be able to make better-informed decisions around everything that’s related to machine health, reliability, and performance. It can also help guide on-site technicians and critical staff on-site to perform the right actions at the right time. This can evolve into the development of a virtual shift — a team of remotely connected experts who guide and support on-site personnel.
Why It Matters
Ultimately, a manufacturing operation must build the flexibility to bring costs down as demand falls, ramp up output during peaks in demand, and quickly take advantage of new opportunities. Maintaining this level of flexibility is impossible without healthy, predictable machines. It depends on eliminating hidden system-level machine health risks while enabling factory floor staff to work remotely.
Resilient machines drive resilient operations, and in the near future, operational resilience will become the new normal. Increasing productivity and flexibility allows manufacturers to stay profitable and adapt to dramatic changes in demand, rapid shifts in production, and the operational headaches of managing all of this with a reduced or remote workforce. The good news is that machine health increases productivity and flexibility without a big upfront capital investment.
Artem Kroupenevs is the VP of Strategy at Augury, where he oversees AI-based machine health and digital transformation solutions.