How workforce, liquidity and supply chain drive manufacturing priorities

AM companies are adapting to a business environment shaped by COVID-19 globally. The identification of the top 10 themes are based solely on the examination of earnings calls held from April to May 2020 by manufacturing companies. 

Here are the top 10 themes:

1. Developments in end markets

Automotive, oil and gas, and airlines were named most often as end markets severely affected in early 2020 due to COVID-19 and record low oil prices. As much of the world’s population were under stay-at-home orders, pharmaceuticals, food and beverage, household products, and consumer electronics experienced sales growth. The demand for personal protective equipment (PPE), testing kits and medical supplies boosted sales of specialized materials.

2. Financial initiatives

New credit facilities and loans are helping companies manage liquidity risks, and debt maturing within the next 12 months is being replaced with longer-term maturity dates. Capital expenditures, including enterprise-wide transformations and facility construction projects, are being postponed. Meanwhile, share buyback programs and dividend payments have been reduced or eliminated by some peers.

6. Working capital and cash flow management

In changes observed from the previous quarter, increasing inventory levels have been a challenge in managing working capital, especially for aerospace companies. While receivables have been a focus of working capital improvement programs, manufacturers are trying to balance rising overdue receivable levels with a focus on preserving long-term customer relationships.

7. Supply chain

Supply chain transparency and resiliency will receive more attention. Plant shutdowns in multiple regions, and the supply chain bottlenecks that have followed, have increased manufacturers’ awareness of the need for better insights into their own supplier networks. Companies are in close communication with their suppliers to keep liquidity issues from closing down operations. 

8. Critical projects

Companies have formed COVID-19 response teams to address the needs of employees and communities, coordinating support at global and local levels. Many manufacturers have repurposed assets to launch or increase production of key pandemic supplies. Capex reductions have put many facility and IT systems projects on hold, but defense contracts and deliveries of military equipment and services are continuing as planned in most countries.

9. Changes in production rates

In the areas of facilities and production line management, plant shutdowns, either under local governmental orders or in response to COVID-19 outbreaks at individual facilities, have disrupted supply chains and order deliveries worldwide. Automotive production lines, which have seen sharp declines in activity, are being idled to control operating costs and inventory. At the same time, production of pandemic supplies is operating at full capacity to meet overwhelming demand.

10. Geographic developments – growth markets

Leaders discussed market conditions in Asia-Pacific, Latin America, and the Middle East and Africa. Revenue declines in major Asia-Pacific economies, especially China, in 1Q20 are expected to reverse in 2Q as businesses reopen. The strategic importance of supply chain operations in China, India and other Asia-Pacific countries was recognized by many manufacturers. Growth in Latin America in segments such as crop protection chemicals was robust in 1Q.