Rapid steps that can help companies recover

Rapid steps that can help companies recover

COVID-19 has taken a toll on almost every industry that machinery and automation players serve, with stock analysts recently predicting that most of the world’s 3,000 largest companies will see profits decline in 2020. (There were a few notable exceptions, primarily in pharmaceuticals and healthcare). With demand dropping and more economic uncertainty ahead, many companies are already delaying new machinery purchases, postponing scheduled upgrades, or canceling existing orders. And with many production lines idle, service requests have also dropped.

A new recovery framework: Nine critical actions to implement immediately

1. Understanding customer needs

After modeling different recovery scenarios, machinery and automation companies can segment individual customers based on their financial situation and production plans. In doing so, they will develop a better understanding of customer needs and the offerings that might appeal to them. For example, a customer in the process of building a new line for a major product innovation is very likely to continue the project—and those machinery and automation companies that can meet or accelerate the desired deadlines for equipment delivery might become the provider of choice.

2. Activating sales levers

Once companies understand how and when their major customers plan to ramp up production, they can identify effective levers that improve topline performance, such as new product offerings or financing options. For instance, a customer with a small-job shop might be experiencing deep financial losses that force it to reconsider planned investment in new equipment. In such cases, machinery companies could provide tailored financing options that help the customer over the buying hurdle. Other new strategies might involve refocusing sales teams on the segments that are both solvent and in need of equipment, thereby maximizing return on investment. Companies could also enhance digital sales or reset prices.

3. Regaining supply-chain readiness

Machinery and automation companies have very complex supply chains, often involving modular sourcing, and they typically have limited insight into the operations that occur beyond their direct vendors. For instance, companies may not know that a second-tier supplier is having difficulty obtaining parts that their direct vendors need for production. Their supply chains are also inherently risky in many cases, since a single supplier may provide some highly specialized parts. If that vendor’s operations are compromised, companies have no readily available alternative.

4. Prioritizing and rescheduling all business activities

With COVID-19 transforming demand and supply, machinery and automation companies must adjust volume planning to suit the new landscape. If they increase topline targets, they must also determine if their supply chains and production lines can support the desired volume and plan accordingly.

5. Being conscious about costs and return on investment

To help preserve profits, machinery and automation companies should review their demand scenarios and align on their target expenditures. Typically, the cost reductions should be in line with the expected drop in revenue.

6. Initiating structural changes

While a crisis may bring challenges that feel insurmountable, it also creates an opportunity for change. With COVID-19, machinery and equipment companies should take a step back and review their business and operational models, looking for structural levers that will lead to long-term performance improvement.

7. Establishing an execution taskforce

With any project, companies may struggle to move from planning to implementation. The current crisis may exacerbate this problem because leaders are addressing multiple urgent problems related to COVID-19 and their attention is even more divided than usual. In this environment, machinery and equipment companies can maintain momentum by creating cross-functional teams at the group level to manage distributors, joint ventures, and other stakeholders within the partner network.

8. Creating a flexible operational model to handle additional disruptions related to COVID-19

Even when COVID-19 cases begin to decline worldwide, the possibility of a resurgence will linger until scientists develop a vaccine. Rather than viewing the current crisis as a once-in-a-lifetime event, business leaders should therefore compile lessons learned about customers, suppliers, and their own operations to create best practices that may be helpful if COVID-19 forces additional shutdowns over the next 1.5 years.

9. Preparing for the pivot to the next normal

A major crisis like COVID-19 will fundamentally alter business trends, often by accelerating or decreasing their progress. For instance, many banks had previously planned to close branches, and they are now doing so more rapidly. As machinery and automation companies progress through recovery and pivot to the next normal, they will also need to adapt their strategies. The following activities will be particularly important:

Credit: Mckinsey.com