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October 15, 2020

Beyond the pandemic: Learn from the survival of the fittest firms

Credit: CC0 Public Domain
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Credit: CC0 Public Domain

Panic buying of toilet roll, pasta, paracetamol and flour. An upturn in sales of household cleaning products, homeware, seeds, even jigsaws.

It's not hard to pinpoint examples of the changes we've seen in retail during the pandemic, or to imagine what this means for the shops, suppliers, distributors and manufacturers involved.

The pandemic has sent a shockwave across all manufacturing sectors, with thrown into chaos by unstable supply chains, and overwhelmed with demand they cannot meet or products they cannot shift. It's normal to have disruption at times, but the effects of the pandemic have caused fractures at multiple points and it's been very difficult for firms to anticipate where these failures will be.

Perhaps unsurprisingly, the changes forced by the crisis are also liberating some firms to experiment with new ways to keep making products. Transitions in business and operational models that would normally take five to ten years have been happening in just five months. In some respects, we are witnessing an evolutionary shock to manufacturing—an 'Operational Darwinism' – which will see some firms survive better than others.

The question is: do firms return to business as usual when the crisis eases or do they examine what worked (and what didn't) during this period of mass experimentation at scale?

Winning the race for survival in manufacturing

During the pandemic, my team at Cambridge's Institute for Manufacturing has been working with the Advanced Manufacturing and Production community at the World Economic Forum to distill what we can learn from recent months.

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We've consulted and collaborated with senior executives from discrete assembly manufacturing companies, process manufacturing industries, financial services and the software sector to hear about their experiences and explore what this means for the future of manufacturing.

Many digital platform businesses, particularly e-retailers like Amazon and Alibaba have done very well as they are able to utilize their operating models to more easily 'flex' supply and demand.

The home-furnishings sector that includes companies like IKEA have also benefitted from an uplift in demand, while others such as Unilever will see some sectors grow rapidly (cleaning products, for example) at the expense of others (food service, due to a slowdown in the hospitality sector). And of course the healthcare sector has witnessed growth across the board but demand surges will have compromised service levels.

Firms that have struggled with the extended disruptions are those that are asset and/or inventory-intensive involving multi-tier supply chains, and particularly those where consumer purchases can be postponed (as in the car industry) or have been impacted by a severe drop in demand (aerospace).

We've asked whether the resilience of some firms has only been achieved through super-human 'crisis' efforts, or whether they have innovated. We've looked at the role of advanced manufacturing (such as 3-D printing and ) in shaping new operating and business models. And we've asked: what are the models that will be worth keeping when the crisis is over?

A series of White Papers will come from the work—the first of which looks at the underlying reasons for sinking, swimming or surfing.

We found four main reasons for failure among firms during the crisis:

And several factors that have helped firms thrive:

Where should we go from here?

More recently we've been considering what this all means for how firms might evolve their business and operational models. We've come up with six suggestions based on the evidence we've collected in recent months.

What's next?

The future belongs to those who are able to manage uncertainty and innovate rapidly.

Firms best-positioned to adapt quickly to fragmenting supply chains or the expansion/disappearance of product demand are those that can swiftly leverage information.

Digital information is key. Whether firms are using it to connect supply and demand fluidly or to digitally link design and operations all the way to the factory floor, they will be better able to anticipate and deal with uncertainty at short notice.

What comes next will depend on how quickly and how well firms can implement digital technologies across product design, production and fulfillment. Although the benefits might not be felt for some time, what we've learned from the pandemic is that the work towards these forms of advanced manufacturing must start today.

More information: Winning the race for survival: How advanced manufacturing technologies are driving business-model innovation:

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