As the number of coronavirus cases rose, states and cities put in shelter-in-place and stay-at-home measures for non-essential businesses and residents. Is your company essential? Should your company be in operation or closed down?
The stay-at-home orders for each state have varying lengths as well as varying definitions of what constitutes non-essential business. Businesses are concerned about the health of their employees and communities as well as the economic health of their companies. Companies were advised to apply for outside aid and many have done so.
Some companies are still installing projects that were already in progress, while others have completely shut down shops. One California woodworking company contacted by Woodworking Network said that no customers have requested cancellation of existing orders, but several others with projects still in the design stage have decided to postpone them until the crisis is over.
A New York company reported no canceled orders, but people were putting off in-house visits and postponing installations. In Arizona, a cabinet and closets company had work in the pipeline for five weeks and expected to survive. Many companies have been able to allow some of their employees to work from home, such as designers, with no production in progress.
As the global economy begins to recover, managers are confronting a new world. No road maps exist that will guide companies to the new normal and a certain successful rebirth. Simply put, tomorrow will be unlike yesterday.
For companies that are closed, it was suggested that this would be a good time to slow down, take a deep breath and look closely and reflect on what their company can do to improve and change.
The larger issue is survival for many companies.
We went to management expert, furniture executive and recently retired FDMC columnist Art Raymond for his view of the situation.
“In most cases only companies that were viable before the lockdown will survive,” Raymond said. “Viability has four critical prerequisites: a solid, profitable market for its products; a well-functioning supply base; a productive workforce; and access to working capital. Company owners must closely analyze whether their operation can recover from an extended slowdown or shutdown.”
Raymond said that key questions that demand answers are:
Are its customers able to continue buying its products at volumes and prices that enable profitability? Are its suppliers able to provide key materials? Will its key employees remain on the payroll? Can sufficient financing be obtained?
“My fear is that even so-called essential companies cannot say yes to all four questions,” he said. “And it will be difficult to survive if any one of the four prerequisites cannot be secured.”
Strategic planning needed
The impacts of the shutdown may have long-term consequences.
To restart, companies will burn existing capital and/or incur serious long-term debt, Raymond said. That situation will hamper a firm’s ability to re-tool and invest in capacity and capabilities going forward. This under-investment will impede productivity growth. The result will be a declining standard of living.
“Smart strategic planning will be critical,” he said. “An operation that was on cruise control will require a stem-to-stern analysis to identify the skills and processes demanded by the new normal.
“In my experience business planning is not a strength of most companies, large or small. Owners and senior managers must rapidly learn to recognize the need to react and change. Strong, clear leadership is a must.”
Time to reshore?
The coronavirus pandemic and its related effects have led to suggestions that reshoring and shortening the supply chain will increase in other industries, especially in medical and defense-related products.
“I’m dubious of claims that the new normal will immediately translate into significant growth in domestic manufacturing,” Raymond said. “Redirecting global supply chains takes time and capital.
“In the wood furniture industry few factories remain after the Chinese tidal wave of the late 90s and early 2000s. Skilled workers are scarce in the U.S. The economics remain biased toward offshore suppliers in places like Vietnam and Indonesia that have low-cost wages. Developing a new factory here faces high facility costs and permitting hurdles. Plus the U.S. consumer prefers designs that are difficult to mechanize.
Being only a truck ride away from the U.S. market, Raymond believes that Mexico looks to be a sound alternative. Compared with Asia’s lengthy ocean transit time, the shorter Mexican supply chain can operate with lower inventories.
“If the tastes and wallets of American consumers would allow, adapting the mass customization model of mid-to-high cabinet producers to wood furniture could be a viable strategy for domestic companies,” Raymond said. “Likewise, the economics of producing simpler-designed, panel-based furniture on European flat line equipment could be an opportunity.”
There is also the issue of Chinese RTA cabinet companies setting up assembly operations in the United States, the subject of a recent trade action.
“U.S. cabinetmakers have long imported components like drawer parts, doors, and frame components and assembled their offering in domestic plants,” Raymond said. “The expansion of Chinese cabinet component producers into the U.S. market is a natural strategic move.
“That supply chain is less effective for manufacturing upper medium- to high-priced product lines that require thousands of components in different species and styles that are primarily made-to-order. Ultimately, however, the rising cost of component production in China will limit the feasibility of this model.”
When asked about the long-term effect on their businesses, some U.S. companies contacted by Woodworking Network were optimistic while others said the remainder of the year could be a struggle.
Some companies with a stronger financial position and solid customer base expected to fare better than most. Other companies are expecting deeper shortfalls. One California company anticipated a 30-40 percent loss of sales by the end of 2020.
It is difficult to make a long-term estimate of how business will recover, but companies will have to prepare for an uncertain future – and a recovery.