Only the Strong Adaptable Survive – Companies Thinking Way Outside the Box to Survive the Pandemic

Abstract

The pandemic has suddenly made ‘agility’ a key survival skill, rather than just an aspiration for businesses. Here’s a look at how some companies have swiftly adjusted, pivoted (sometimes radically), and improvised on the fly.

Article

While luck and having adequate cash have been important factors in determining which companies make it through the pandemic, the ability to rapidly adjust and adapt has become the key to survival for many companies. Uncertainty reigns supreme and it seems everyone is figuring this out on the fly and learning as they go. Regarding the ‘luck factor,’ there have been enormous differences in the impact of the pandemic on different industries. As outlined in The Coronavirus Pandemic’s Impact on Different Sectors and Their Supply Chains, you can roughly view the economy as falling into three categories of sectors:

  1. Extreme-increased-demand Sectors — where demand has skyrocketed to many times normal, such as medical PPE (i.e. personal protective equipment — especially N95 masks), ventilators, disinfectants, home grocery delivery services, etc.,
  2. (Almost) Normal and (Mostly) Diminished-demand Sectors — Most of the economy is here, mostly with diminished demand. Some sectors are seeing nearly normal demand, but with radically different location of consumption (at home instead of at work or at restaurants, etc.).
  3. Decimated Sectors — Such as airlines, hotels, sports, restaurants (and their suppliers), mass transit, and so forth. Some of these will not survive without outside help.

Make a Lot More — Right Now — We Need it Yesterday!!

Source: CDC

For those in category 1 (Extreme-increased-demand Sectors), the challenges are around how to ramp up production to meet surges in demand. Well before the pandemic, 3M recognized that their N95 mask business was one where demand would not always be steady; where events could cause demand to explode. They prepared in advance, developing surge capacity by having dormant production lines ready to spring into action, sourcing locally with suppliers and ensuring those suppliers were always prepared to ramp up raw materials deliveries, and putting in place emergency response teams and plans ahead of time. That preparation enabled 3M to double the global production of N95 masks in just two months to about 100 million per month. That would have been impossible without the investments they made in advance. They are now investing more in new equipment to reach a production capacity of 2 billion masks per year within the next 12 months,1 all while following protocols to keep their production workers and other employees safe.

The demand for mechanical ventilators has surged even more. By some estimates, the demand is about 100 times the normal rate for the industry. In this case, automotive and aerospace manufacturers in both North America and Europe are stepping in, leveraging their existing manufacturing capacity, supply chain expertise, and machines at idled plants; repurposing them for ventilator production. This has required incredibly rapid massive knowledge transfer from traditional ventilator manufacturers (as briefly described in our LiveWorx writeup). It also required a radical shift of production techniques from assembly line to workbench production approaches.

Ford and GM started pivoting to making ventilators just since mid-March. The transition has been incredibly swift. Ford licensed a ventilator design from Florida-based Airon Corp., which builds about 10 ventilators per week. Ford has been putting together the capacity to make 7,200 ventilators per week, more than 700 times Airon’s existing capacity.

GM is working with Ventec Life Systems in Seattle. After sending their engineers there to review the designs (which include about 700 components), GM lined up 100 suppliers that weekend. When they discovered there were a few dozen parts that these 100 suppliers couldn’t make, they immediately sent an email to nearly 20,000 suppliers with the drawings and specs for what they needed. Within a week and a half, they had many components already being produced, a process that would normally take about six months or so. For example, Twin City Die Casting was planning on calling lenders on March 21st to warn that their revenue would be devastated by the shutdowns at their automotive customers’ plants. Instead they got the call from GM. Within a week, they were producing ventilator parts. Their CEO said, “The speed this is moving, I’ve never seen anything like it.

Dramatic Shifts in Consumption Patterns — How Toilet Paper Manufacturers Had to Adapt

For many sectors, overall demand has not changed dramatically — but with people under lock down, the patterns of consumption have shifted dramatically. No more eating out. A lot more home delivery. A lot more baking and cooking at home. And toilet paper being used a lot more at home and a lot less in offices, restaurants, and public places.

The toilet paper sold to businesses is fundamentally different than the toilet paper sold to consumers via stores. Hence the switch in location of consumption was more than just a challenge of redirecting inventory through different channels of distribution. The manufacturing processes and machinery are different between commercial and consumer toilet paper. The raw materials are different (toilet paper sold to businesses is typically made of pulp from recycled materials, whereas consumer bathroom tissue uses new pulp.). Hence toilet paper manufacturers have been scrambling to ramp up production of consumer-grade toilet paper while keeping employees safe. As with many other businesses, this has involved new procedures such as staggered start times and breaks, temperature check upon entry, only prepackaged food in the cafeteria, maintaining distance, and conducting all team meetings via video conference, even if everyone is at the plant.

They are also bringing online all idled potential capacity they have anywhere. P&G flew in a team of engineers from other plants to help its Albany plant bring up a line in two weeks that normally would have taken several months. They ended up using the corporate jet to get those same engineers back home, since the commercial flights had stopped flying while they were there.2

Toilet paper manufacturers have also been considering whether to retool some of their factories that produce commercial toilet paper, but that is a tough call as it will take months and a fair amount of capital to do. Meanwhile, there is so much uncertainty for the future: will demand for home toilet paper continue at its current level or decline as the economy reopens? Will the hoarding that took place in the early part of the pandemic cause a downturn of demand for a while? Perhaps one lesson here, which many automotive companies have learned, is the value of flexible production capabilities, where the same line can produce different types of products, to deal with uncertain demand. I’m guessing that toilet paper demand was stable enoughand margins lowenough, that those kinds of investments didn’t make sense in the past. Maybe they do now.

Bending (and Sometimes Breaking) the Rules When Lives are at Stake

One example I heard of thinking outside the box and bending the rules involved a project manager for a moving company in Illinois that specialized in office moves. Demand for their moving services had dried up and business virtually ground to a halt due to the pandemic. They, along with thousands of other Illinois businesses, had received a desperate plea, via mass email, from the state of Illinois, asking if anyone could help find and procure PPE (personal protective equipment such as masks, gowns, goggles, and gloves). This person was in the moving business, not the PPE business. Nevertheless, with the help of a trusted connection of a connection of a connection, he was able to line up 1.5 million masks from various manufacturers in China — but with the huge caveat that they must be paid for upfront within 24 hours (that was the only way these Chinese factories would do business under the current circumstances).

Because lives were at stake, the state assistant comptroller took an enormous leap of faith, bending or breaking all the normal rules — she agreed to pay upfront, temporarily shut down the payment processing system for the entire state of Illinois to get that one check printed, and then personally drove it down and handed it off to the buyer in a McDonalds parking lot almost 100 miles away, so that the $3.5 million check could be raced to the bank and deposited just in time for the deadline — more like a scene from a movie rather than business as usual. In normal times, that would probably have gotten the comptroller fired. But these are not normal times. The gamble paid off; Illinois got their masks. Now that is thinking and acting outside the box.3

Learning from Others — Playbooks Abound

Source: Lear

One sign of how unusual these times are is how freely businesses are sharing their COVID-19 best practices with others. Lear, a global manufacturer of electrical systems and seats for cars, published their 83-page Safe Work Playbook for anyone, including archrivals, to download and use. Already in its second edition, it includes topics such as setting up a pandemic response team, plant operating protocols (e.g. cleaning and disinfection procedure, staggering shifts and breaks and other social distancing strategies, on-site health screening strategies, protocols for isolating employees who become ill at work), employee outreach and training, and site certification.

Target has published a 60-page document on Safe Retail: Considerations for Retail Operations Post COVID-19. Black Sheep Restaurants (Hong Kong), published Standard Operating Procedures: COVID-19 Playbook for reopening restaurants. Premise Health, a provider of direct healthcare services,4 published Campus Re-opening Playbook: Strategic considerations and practical recommendations for employers. Salesforce.com published their COVID-19 Response Playbook. The National Retail Federation launched Operation Open Doors, providing guidance and tools for retailers to navigate the reopening of stores. IBM is sharing its Return to Workplace Playbook. In short, businesses can leverage the work of others, and not have to figure it all out themselves.

Cash is Still King

Of course, a company’s cash and debt position still make a huge difference in how well they weather the storm. In industries where demand has shrunken, highly leveraged companies are failing. If the Fed hadn’t taken the bold and unprecedented step of launching their Main Street Lending Program (becoming the lender of last resort, not just for banks, but for businesses as well), then the carnage could have been much worse. When we look at some of the early bankruptcies, we see companies failing that were already struggling, often with high debt and/or underperforming strategies. For example, Neiman Marcus was already in trouble due to its slow adoption of digital, cross-channel retailing and erosion of its differentiation in the luxury retail sector. On top of that, their debt burden had more than doubled, from $2.3 billion in 2010 to $5.1 billion this year. Their weak digital capability and over-reliance on store traffic, combined with a collapse in demand for luxury items during the pandemic, and their towering debt became a one-two-three punch, forcing them into bankruptcy. In contrast, Macy’s, though still in a tough spot, has been able to leverage their real estate portfolio to raise $4.5 billion in new financing to weather the storm. If J.C. Penney, Lord & Taylor, Neiman Marcus, and Stage Stores all go bankrupt and either disappear or reemerge significantly smaller, then Macy’s cash advantage may allow them to resurface with fewer direct competitors. This in no way ensures sustainable success — Macy’s will likely have to make some major strategy changes to survive in the long-term — but it should help them get through the current crisis.

Will This Agility Continue in a Post-Pandemic World?

There are many more stories of companies making nimble ad-lib adjustments during the pandemic. This includes restaurants doing take-out and delivery, retailers offering curb-side pickup or by-appointment shopping, and more. The pandemic is bringing out the creativity and agility demanded to survive in trying circumstances. Perhaps we’ll see some of this agility and ability to rapidly adapt continue, even after things return to normal.

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1 See How 3M Plans to Make More Than a Billion Masks By End of YearReturn to article text above
2 See WSJ article, P&G Toilet Paper Factory Keeps Delivering as Coronavirus Strikes Its TownReturn to article text above
3 This story was told on Planet Money (an excellent podcast about the economy, which I highly recommend) in the episode The Mask Mover, broadcast in mid-April. — Return to article text above
4 Premise Health operates more than 600 wellness centers across the US for commercial and municipal employers. — Return to article text above


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