Production sites are reopening – is the worst over?

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It’s difficult to say if we’re currently in a post-pandemic or a pre-second wave world. Most likely, both. Nevertheless, a push to reopen businesses and cushion the economic damages incurred by the spread of the novel coronavirus has instilled hope in many that the worst is over.

Not so fast though. While some governments have done a better job of curbing the spread of the virus than others, the pandemic still poses a real threat in most places. As authorities push for a reopening and as the number of infection cases begin to taper off in some regions, there are a number of issues supply chain professionals will need to watch out for. 

Facilities operating at less-than-full capacity

Authorities in countries with declining infection cases have begun to ease restrictions. Understandably, factories in areas highly exposed to COVID-19 continue to exercise caution and comply with local social distancing measures. As a result, factories may not be able to operate at their pre-pandemic capacities, allowing for appropriate distances between workers on shop floors. 

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Manufacturers are also testing employees to detect outbreaks early within their workforce. One recent case shows 15 percent of a sample of employees tested at the Hranovski auto parts plant in Smolyan, Bulgaria testing positive, stopping production lines at the plant to disinfect workplaces. Similarly, the production of Hyundai Palisade had been halted in South Korea due to a disruption in the components supply chain after an employee at a supplier’s site tested positive for COVID-19. Such interruptions will continue to impact productivity as companies struggle to reach production capacities to pre-pandemic levels. 

Risk of labor protests and walkouts

Workers across regions are increasingly voicing their discomfort with reopening measures while the pandemic is still going on. As a reaction to those pushing to reopen businesses and in light of the exposure to other infected employees, some have taken to protesting and organizing walkouts. Automotive workers at Fiat Chrysler staged a work stoppage at the Sterling Heights Assembly Plant in the north of Detroit recently, after a materials handler worker had tested positive. This brought production to a halt.

Especially in areas with infection cases still on the rise, there are increasing risks of labor protests, resulting in unforeseen work stoppages and disruptions to production lines.

Supplier insolvencies

The financial stress triggered by the production shutdowns have meant that smaller yet critical suppliers are now exposed to insolvency risks. A recent study by Resilience360 found that more than 350 automotive-related company insolvencies were recorded in 2020 so far. Through the month of April and May, there have been about 3.6 insolvency filings per day, a 20 percent increase compared to the month of March. The number of daily filings increased another 21.1 percent in June.

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The increases have come despite temporary changes to bankruptcy law in many countries, including in Germany, the United Kingdom, France, and India, that relieve companies from filing for such measures until the third quarter of 2020. In Mexico, the bankruptcy protection agency El Instituto Federal de Especialistas en Concursos Mercantiles (Ifecom) returned to work only on July 1 after being closed for business since March 18, triggering fears that an avalanche of insolvency filings are still to come. Supply chain managers will need to prepare for increased financial pressure on suppliers together with longer term structural changes in manufacturing supply chains.

Preparing for resiliency

Easing lockdown measures, together with any restart of manufacturing operations will have to be carefully monitored by geography, helping supply chain planners understand where production is likely to resume. The risk of a second wave of infections in countries which seem to have peaked needs to be considered. In a number of suspected second waves detected early, authorities have swiftly moved to quell an outbreak. With that in mind, organizations need to monitor infection rates among the general population as well as their own and their suppliers’ employees, assessing the likelihood of a new quarantine measures.

As manufacturing operations come back online, supply chain managers need to assess production capacities of each site, and to what extent their suppliers are going to fulfill existing contractual obligations. This will help inform decisions on adjusting production schedules to ensure the availability of supplies and to maintain supply chain resiliency.

Published: August 2020