Readers Choice 2020: Impact of COVID-19 on the Process Manufacturing Industry; 2020

World War III rumors. Earthquakes. Cyclones. Locust attack. Bushfires. Worldwide economic downturn. Asteroids. COVID-19. All these events have happened in 2020, triggering the fear of apocalypse, and making people wonder whether the world will come to an end this year.

COVID-19 alone has been the biggest source of worry for people, claiming close to 4 lakh lives worldwide, and still going strong, even as the world struggles to come up with its vaccine. The Coronavirus pandemic has not just affected millions of lives, but also disturbed hundreds of thousands of businesses across the globe.

Impact on the manufacturing sector

One of the hardest-hit segments from COVID-19 is the manufacturing sector. The novel Coronavirus originated in China, which is home to the majority of the factories that supply raw materials to several manufacturing units across the world. Measures were taken to stop the spread of the virus.

The lockdown that followed brought the manufacturing facilities to a standstill, derailing the entire global supply chain. To put things into perspective, more than 75 percent of businesses have “one or more direct or Tier 1 supplier,” from China, and 938 of the Fortune 1000 companies have Tier 2 suppliers there.

This has triggered a chain of events, including a sharp decline in global FDI inflows, and a downturn in economies world over. The United Nations Conference on Trade and Development (UNCTAD) has estimated that the COVID-19 outbreak could cause global FDI to shrink by 5 to 15 percent, due to the downfall in the manufacturing sector coupled with factory shutdown. 

A look at the process manufacturing sector

The impact of COVID-19 on the global manufacturing industry can be classified into discrete manufacturing, i.e. automobile, machinery, electrical and electronics, metal, aviation, etc., and process manufacturing, i.e., food & beverage, chemicals, pharmaceutical and medical equipment, paint and coatings, and personal care & cosmetics, among others.

Through this blog, let’s explore the impact of COVID-19 on the process manufacturing industry, and the year 2020 in general. We’ll take a look at the process industries mentioned above, highlighting the impact of COVID-19 on them, and concluding with some collective measures that can help these process manufacturing industries find their feet again.

Pharma manufacturing industry

The disruptive effects of the COVID-19 have put the global supply of medical products under tremendous pressure, creating the problem of shortages. The USA and other major pharmaceutical and medical device manufacturing nations rely heavily on sourcing material directly and indirectly from China, where the virus originated. With limited operational capacity in China, they now face high risks in supply shortages.

The USA, for example, gets 13 percent of its medical products manufactured in China. India, too, depends for about 80 percent of active pharmaceutical ingredients (API) on China, which is the world’s leading producer and exporter of APIs by volume. The pharma manufacturing companies in these countries have suffered heavily after the outbreak of the pandemic.

Also, India, another leading API manufacturer, has halted the export of 26 ingredients commonly used in pharmaceuticals in its efforts to ensure uninterrupted availability of critical APIs.

Clinical trials too are getting affected, as approximately 20 percent of studies are conducted in China. According to the clinical trials database of the USA, ClinicalTrials.gov, around 500 trials are conducted at sites in the city of Wuhan — the fountainhead of COVID-19.

COVID-19 has also forced many pharma manufacturing companies to focus on the production of masks, ventilators, and related components, sanitizer, and others. This way, they have been able to minimize the impact of the pandemic to some extent. But this cannot be their long-term strategy for survival, as they will have to focus on innovation, and the need to change business processes, to survive the pandemic.

Food & beverage manufacturing industry

In the current scenario, food & beverage manufacturing companies are facing significantly reduced consumption as well as supply chain issues. The grocery shelves are witnessing increased scarcity, and the rampant stockpilers who have indulged in panic buying have contributed heavily to it, apart from, of course, the supply chain derailment.

The supply of raw materials and ingredients to the manufacturing sites has been badly affected, which has hampered production, forcing manufacturers to shun operations. Also, manpower availability in the time of social distancing has been another major headache. As a result, the food & beverage companies have suffered a 22 percent loss in turnover globally, a study by French trade group ANIA suggests.

While at-home consumption has shown a spike, the out-of-home consumption, which traditionally generates the higher-margin, has come to a standstill.

Paint & coating manufacturing industry

The global paint & coatings manufacturing sector is also facing the prospect of a deep recession, as major markets continue to remain locked down to slow down the spread of the novel coronavirus. Again, China being the key exporter of some critical paint & coatings raw materials like pigments and certain additives, dealt the global paint & coatings industry with a heavy blow.

The ripple effect is huge when something unprecedented like COVID-19 happens. This can be witnessed in paint & coatings industry’s case too, as in addition to its manufacturing operations getting affected, its big industrial customers, including automobile manufacturers and construction sites, have temporarily closed down in many countries, causing a significant fall in demand too.

Also, a recent increase in global oil prices has led to an increase in the costs of petrochemical-based raw materials, which the industry is heavily dependent upon.

Specialty chemicals manufacturing industry

The COVID-19 pandemic has resulted in global chemical production declining by 2.4 percent in February 2020, and 1.3 percent in the month of April, 2020.

Almost every type of chemical category has witnessed a decline in production. But, the production of specialty chemicals has witnessed a 9.4 percent decline.

The unprecedented crisis has forced leading chemical manufacturers around the globe to reduce capital and operational expenditure, and scale down their manufacturing operations to 40-60 percent capacity due to labor shortages, reduced demand, potentially tightening credit markets, and shortage in the raw material supplies.

The corona virus outbreak has also meant that many production facilities of several end-user industries such as plastic, fertilizers, medicines, packaging products, etc. have been halted. With this, the demand for chemicals used in these facilities has also declined.

Personal care & cosmetics manufacturing industry

The global personal care & cosmetics manufacturing industry that can be classified into skincare, haircare, fragrances& perfumes, and other cosmetics, has experienced a downfall in sales during the COVID-19 outbreak due to the closing of offline stores at various locations across the globe.

Many countries still being in the lockdown mode across the globe, personal care &cosmetics manufacturers have had to shut down their production units due to labor shortage, and reduced demand, with finding markets where goods can be exported to, becoming hard.

Just like other industries, the personal care & cosmetics industry too has been severely affected at the supply chain front. Halted factory work in China has been the prime reason behind this disruption. In near future too, the industry is likely to remain affected by these developments, with e-commerce majors including Amazon and Flipkart halting the supply of non-essential products (including cosmetics).

Conclusion

All the major sectors of the process manufacturing industry are suffering in the time of COVID-19. Reduced demand, and disrupted supply chain have been their major headaches. However, with challenge comes opportunity. Once the dust settles, the process manufacturers will find it imperative to innovate and change with time to remain relevant. The need of the hour though, for them, is to:

• Introduce worker safety measures, along with best hygiene & sanitization practices, at work

• Revisit their sourcing strategies, and line up alternate suppliers

• Rationalize their product ranges

• Evaluate supply chain agility, and make it more resilient

• Review their crisis or emergency response plans

• Optimize & streamline e-commerce & distribution networks

• Revisit their pricing, and promotion strategies

A good process Manufacturing ERP software can help achieve most of the objectives mentioned above, and beyond. The sooner the process manufacturers realize that an ERP software for process manufacturing can be of great help in the post-COVID world, the better for them.

The content & opinions in this article are the author’s and do not necessarily represent the views of ManufacturingTomorrow

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