Masters of Manufacturing: CEOs Planning ‘Resilience’ For Next Crisis

Manufacturing CEOs can mean a few different things when they talk about building a “resilient” company, and Covid-19 has highlighted the importance of every one of them. Companies powering across the pandemic chasm are those that have built bounce-back into their supply chains, factory operations, human capital and overall culture. And leaders of enterprises that are faltering are trying to figure out how to establish more resilience for the next crisis.

The manufacturing supply chain – and a dependence on China for finished goods or components – has gotten the most attention of any facet of resilience if only because the risks in such relationships became dramatically apparent as China birthed the pandemic and was the first economy to shut down because of it. Then Canada and Mexico closed their manufacturing economies to various degrees, and all of those closings of suppliers hit various U.S. factories hard.

They had been enamored of Chinese costs and efficiencies, so many U.S. manufacturing CEOs were caught flat-footed. “Ten years ago, a diverse global supply chain was seen as a virtue, but now we’re seeing the soft underbelly of that,” Tom Bell, CEO of Rolls-Royce North America, told the Chief Executive Virtual Smart Manufacturing Summit recently. “Resilience makes all of us think about what we presumed to be a certain goodness in our supply chain and manufacturing that needs to be revisited post-Covid-19.”

As a major manufacturer of U.S. defense goods, Rolls-Royce’s operations in Indianapolis and elsewhere were able to keep rolling during the pandemic shutdowns, but it and other defense contractors ran into problems because Canada and Mexico “didn’t recognize that U.S. defense assets are critical to them, too.”

So “a key unlock” from Rolls-Royce’s pandemic experience, Bell said, is “bringing part of our supply chain back into our factory and controlling our own destiny.” He added, “If there is the ability to bring certain parts of the supply chain in house, companies across America will be doing that selectively and intelligently.”

Volkswagen of America is proving the point. Once it reopened in May after a couple of months shut down because of Covid-19, the Germany-based automaker managed to work with suppliers in North America to keep operating its U.S. plant, in Chattanooga, Tennessee, while some competitors were faltering upon re-opening. But Reinhard Fischer, senior vice president of strategy for Volkswagen Group of America, told Chief Executive that the automaker plans to “use this opportunity to rethink our supply strategy for the mid- and long term.

“What the crisis has shown us very clearly is that we’ve focused over the last year on cost efficiency and have neglected resilience. While resilience – probably because of the redundancy you’re building – is going to increase your costs, it avoids dependence on specific suppliers.”

At the same time, Nigel Thurlow told the Chief Executive conference that savvy CEOs would balance a number of factors as they considered ways to cut their dependence on Chinese factories, whether that means seeking out alternative sources in India or Vietnam, or even including reshoring production to America. Public opinion and U.S. politicians are creating a lot of pressure for re-domestication of manufacturing.

“I’m waiting for consultant groups to arise for ‘resilience transformation,’” said Thurlow, former head of agile manufacturing for Toyota and now CEO of the Flow Consortium consultancy. “But please don’t rush to name a chief resilience officer. Resilience isn’t a new topic.”

To wit, Thurlow said, “There’s a big push to move players in this game, but honestly, it can be like just shuffling deck chairs on the Titanic. If you move everything back on shore, you’re going to increase costs. The reality is that things back home cost more to make for a variety of reasons. So you need balance.”

Another aspect of resiliency that manufacturing CEOs can overlook in good times came front and center during the pandemic: human-capital resiliency. Disruption and uncertainty involving moving into their homes to work, taking temporary pay cuts and changing assignments as companies slimmed down have affected millions of American workers and have tested companies severely as they tried to do business during the pandemic or to recover from it.

“We’ve been focused on our 50,000 people and ensuring their physical, emotional and mental resilience during trying times,” said Bell of Rolls-Royce. “We had to modulate people’s hours at work, for instance. Even though they’re not physically at work, the blending of office and home was exhausting people.”

Echoed Wayne Cooper, chairman of the Chief Executive Group, which hosted the conference: “Managing a remote workforce has taken on new importance, and the first aspect of that is acknowledging that many people who are working from home don’t have ideal home environments. People are nervous, distracted and in many cases they’ve got their kids learning at the same table they’re working at.

“So managers have to apply new tools,” Cooper continued. “Email isn’t enough for communication. People who are used to manage by walking around need to adapt new tools and be more proactive in how they communicate, such as with weekly calls for goal setting [or] daily check-ins in the morning, and some at the end of the day too.”