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Supply Chain News: What You Make Largely Determines Coronavirus Strategies

 

CPG Manufacturers Overwhelmed with Demand, while Discrete Manufacturers from Cars to Apparel See Demand Collapse

March 25, 2020
SCDigest Editorial Staff

Manufacturers are adopting a broad array of strategies to cope with the global and US coronavirus crisis, but it is becoming clear what you make largely determines where you stand.

Makers of food, beverages and many categories of consumer packaged goods are seeing unprecedented demand, as consumer stock up in preparation for an unknown supply chain future, and buying products such as disinfectant wipes in quantities far beyond what those purchases would be in non-virus times.

Makers of almost everything else are seeing demand plummet, in some cases to zero, as purchases from consumers and business for everything from cars to aircraft falls off a cliff.

Supply Chain Digest Says...

Hanes announced on Saturday that it is converting production of apparel to production of cotton masks

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On the CPG side, manufacturing was caught a bit off guard in part because of the very success of supply chain practice in reducing inventories. In the food industry, those inventories not long ago were measured in months' worth of sales. Now for most it is like 4 to 6 weeks.

So when demand surged at the start of the crisis, CPG manufacturers had so scramble, in some cases it is reported, making real-time sourcing and production decisions on the fly without the careful orchestrated supply planning most have become dependent on.

They are also getting creative. The Wall Street Journal reports that General Mills is shipping large quantities from plants direct to retail stores, not the retailers' distribution centers, to take some time out of replenishing stores shelves.

That of course flies in the face of retail trends, in which retailers wanted to use smaller orders for each SKU, driving many consumer packaged goods companies to create "mixing centers," in which almost all products are carried in each market region, then shipped in small quantities per SKU but yet in full truckloads to retail DCs.

And such busy factories are employing strategies such as staggering shifts, banning visitors and installing barriers between workers to protect them from infection.

In so-called discrete manufacturers, the concerned at first was largely around production challenges caused by disruptions among suppliers for components in China, especially, but other areas as well due to the crisis.

But now many manufacturers probably are happy to do without the parts, as they are drastically reducing or even shutting down production, as customers have gone away or they are deemed as a "non-essential business" that must be closed according to new rules in some states.

For example, Boeing announced Tuesday said it was suspending airplane production in the Seattle area for 14 days beginning on March 25.

The shutdown will take place at "sites across the Puget Sound area," where roughly 70,000 employees work to build such aircraft as the Air Force's KC-46 aerial refueling tanker and Navy's P-8 Poseidon submarine hunters, according to a company statement.

Airlines across the globe are seeing demand for air travel collapse, and are almost uncertainly pulling back orders or deliveries of new planes.

And when Boeing closes factories, hundreds of suppliers also see their demand fall to zero. For example, GE's aircraft engine division announced layoffs of 2600 workers lst week.

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"The rapid contraction of air travel has resulted in a significant reduction in demand as commercial airlines suspend routes and ground large percentages of their fleets," GE CEO Larry Culp said in a statement Monday. "As a result, GE Aviation is announcing several steps that, while painful, preserve our ability to adapt as the environment continues to evolve."

Last week, Germany's Volkswagen said it was preparing to shut down most of its European plants.

Monday, outdoor equipment maker Polaris and RV maker Winnebago Industries both said they will temporarily close manufacturing lines as the coronavirus pandemic causes slowdowns in their sectors.

Polaris said it will close its plants for one week in Minnesota, Alabama, Iowa, Wisconsin, and Washington, and internationally in Mexico and Poland.

Whether the closure will extend beyond one week remains to be seen but seems likely.

Winnebago said Monday it is suspending production through April 12, and its main competitor, Thor Industries, also said it would shut down North American production.

Meanwhile, last week General Motors, Ford, Fiat Chrysler, and Tesla all said they would temporarily close all US factories due to the coronavirus. That of course will immediately ripple though parts suppliers from tires to spark plugs – though many of these (but certainly not all) come from China.

Then there is sock, underwear and apparel make HanesBrands. It announced on Saturday that it is converting production of apparel to mznufacturing cotton masks approved by the Federal Drug Administration for use when N-95 masks are not required or available.

The company is already retrofitting some of its factories and expects to ramp up production to 1.5 million masks weekly.

So it is feast and famine right now in US manufacturing – and seems likely to stay that way for some long period of time.

Anything to add on US manufacturing and the virus? How far and fast will demand drop for some? Let us know your thoughts at the Feedback section below.

 

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