Successes in operating and business models during the COVID-19 crisis
Some firms have been more resilient and have thrived during the crisis.
While we have seen many industries and sectors come under intense stress during the COVID-19 crisis, there are emerging examples of firms and industries that have thrived. These include manufacturers that have used digitally enabled design, production and fulfilment as their dominant business model, such as Fast Radius and Tulip, online retailers that have leveraged highly digitalized supply chains, such as Amazon and Alibaba, remote-working, team-based platforms like Zoom and Microsoft, and distributed manufacturing models where new technologies have been fast-tracked to meet unexpected demand surges.
In the examples below we identify, across sectors, the success factors that have allowed some firms to thrive. These success factors can be categorized in the operating and business models represented in the figure below, which have proven to be better able to reconfigure than others.
In this section we describe seven enabling factors of new operating and business models:
- Reconfiguring manufacturing capability
- Repurposing of manufacturing capacity
- Digitalization of supply chains
- Strategic workforce planning
- Provision of capital and liquidity
- Remote infrastructure management
1. Reconfiguring manufacturing capability
Reconfiguring manufacturing capability has been crucial in responding to shortages and has been enabled by the fast-tracking of new technologies such as additive manufacturing and 3D-printing that can deploy various technology solutions across multiple markets at speed. Ironically, many of these new technologies that engage directly with end-users and consumers have seen accelerated adoption during a period of social-distancing. This crowd-sourcing, while successful for simple component supply where 3D-printing and maker-spaces have come forward successfully to part-meet shortages, requires more complex partner selection and orchestration when targeting more sophisticated requirements. The jury is perhaps out as to whether ventilator supply or diagnostic testing initiatives from new supply sources will, in fact, revert to the usual suspects.
2. Repurposing of manufacturing capacity
Leveraging existing and local-production capabilities by repurposing capacity to manufacture low-medium complex products has been critical to address shortages in products such as sanitizers, medical gowns, etc. It has become clear that shorter supply chains involving reconfigurable manufacturing capability and distributed manufacturing approaches can support scale-up, responsiveness and resilience, which has also allowed the rapid production of more complex vital products such as ventilators and diagnostics. In addition, e-commerce and last-mile logistics play a key part, as they are vital for being able to deliver to the point of need.
3. Digitalization of supply chains
The digitalization of supply chains has been critical to allow early switching of capacity and resources across multiple tiers of the supply network, necessary for the flexibility and resilience of future manufacturing systems. For established retailers offering an omni-channel e-commerce experience, digitalization has been crucial to meeting online demand. In manufacturing operations, Henkel, a company part of our Global Lighthouse Network, has used its real-time connectivity within its manufacturing network to provide the necessary supply-chain visibility to enable efficient and timely integration of supply and demand.
The digitalization of supply chains also allows for disintermediation, which has increased responsiveness and taken out supply-chain complexity as we are witnessing in specialist food supply chains. Near real-time data-flows have allowed service providers to respond to changes in supplier, producer and consumer behaviours that are often highly unpredictable during a crisis. Hospitals, in particular, have had to cope with multiple COVID-demand scenarios but also deal with non-COVID patient-demand fluctuations. Manufacturers and retailers whose demand and supply systems have been designed for responsiveness and flexibility have an edge from those that are constrained by rigid centralized operations.
4. Strategic workforce planning
Supply resilience has not been straightforward for those with substantial bricks-and-mortar operations, as initial stock-outs followed by the steep drop-off in in-store demand during lockdown has been substantial, and the exponential growth online has been difficult to scale-up because of the challenges in strategic workforce planning where staff shortages have impeded the scale-up of last-mile delivery operations. Intriguingly, new entrants to the last-mile-home delivery have emerged and the local “mom-and-pop” stores have been rediscovered. It is unclear how this major disruption to the retail market will play out, but one can imagine a new normal where e-commerce becomes even more dominant.
At an institutional level, the need to relax competition laws and underwrite liability are being observed to enable new capability and capacity. And while online communication platforms are allowing for remote team working for office-based workers, strategic workforce planning remains key and must include those at the sharp end as key workers are required within healthcare systems, food and retail supply chains and supporting infrastructure.
5. Provision of capital and liquidity
In the broader online sector, Alibaba has recognized the importance in the provision of capital and liquidity to its manufacturing supplier base and has stepped forward by providing critical guarantees to ensure the continuation of supply to its operations.
Within bricks-and-mortar retail, the smaller players can perhaps demonstrate greater responsiveness to the market where reconfiguring to local supply sources and availability becomes critical – their more person-based replenishment networks, involving both upstream and downstream collaboration, benefit from informal data flows and trust-based relationships. Again, one can imagine that such relationships developed in a crisis will sustain and perhaps be more valued.
6. Remote infrastructure management
Operational resilience is achieved through remote infrastructure management, which is particularly relevant for service providers to address customer requirements. For example, manufacturers such as Schneider Electric, also part of our Global Lighthouse Network, have used their digital platforms to enable connectivity with customers.
Their digital connectivity solutions have enabled technicians to utilize their expertise remotely to address fault resolution and factory-acceptance testing. Highly automated business-to-business industries which can be managed remotely seem less affected in the short term.
Other high-tech industries such as semiconductors, have significant automation and low personal interaction and appear somewhat less affected in the supply of intermediate products as they are less dependent on large labour pools, or immediate market fluctuations. The question remains as to whether these highly automated intermediate industries will have surplus capacity as end-user demand is reduced over the next 12-18 months.
The progressive platformization of aspects of design, production and fulfilment through digital technologies has been a key discriminating feature of firms that have thrived in the crisis. Some high-tech firms have leveraged digital platforms as a core part of their business model to go from design, to fast prototyping and product commercialization, and have managed to address specific product shortages. This is exemplified by Tulip’s role in full-mask production and its involvement in the Rise Ventilator, both having been developed in a matter of weeks.
Similarly, in e-commerce, large retailers leverage quite different digital platforms, some more centralized and rigid in operating parameters than others, and some that are availability-based (e.g., Ocado) and others largely driven by consumer demand (e.g., Tesco). While both of these retailer practices leverage highly digitalized dark-store platforms, they have struggled to keep up with the exponential surge in online demand, with delivery slots, even weeks forward post the initial month-long lockdowns, unavailable despite the recent trends for same-day delivery.
Another aspect of platformization is inter-organizational collaborations, as leveraging global know-how remains a key aspect of supply resilience.
Perhaps some of the more surprising contributors to have stepped up have included the university sector and technology providers where support to hospitals on patient-demand projections, hospitals logistics and the supply of critical consumables have been enthusiastically received by those coping with the unprecedented increase in demand. There are dozens of examples of this type of collaboration across the US, the UK, Europe and Asia.
At a governmental level, the manufacturing and supply sector has seen widespread demand for provisioning of specialist equipment such as ventilators and consumables such as PPE. Here, the “call to industry” represents another form of inter-organizational platformization, involving the scaling up of existing capacity and the creation and onboarding of new consortia of manufacturers and suppliers that are new to the industry.
This has seen Dyson move from household appliances to healthcare, automobile manufacturers into diagnostics and healthcare equipment, and designer brands such as Burberry into the supply of medical gowns. However, this has also seen an untidy scramble to understand who can actually do what and marshalling resources accordingly.
In summary, we can observe a number of operating models that have thrived in this pandemic and may provide clues as to how future business models might evolve. Even before the COVID-19 crisis, many would argue that climate change, trade tensions, food insecurity and the high dependency on distant production with their extended supply chains was unsustainable.
Such developments will facilitate more distributed manufacturing supply chains, underpinned by digital platforms and technologies, embedded in more local industrial ecosystems that leverage global know-how, providing a transformation roadmap for the future.