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COVID-19 COO dilemma: 5 key drivers to decide between pausing or restarting

 

 

Point OF VIEW

By Sébastien Cailliau, Nicolas Comte, Arnaud Guerin and Olivier Paget, Partners and Principals at CYLAD Consulting

The sanitary aspect of Covid19 crisis has hit suddenly the operations of most industrial companies.
After facing this first phase of the crisis, in some cases with production and operations stopped or highly disturbed, COOs of industrial companies are now in front of major questions: When should I restart operations and at which speed?
Here are some keys to solve the Covid19 COO dilemma.
COO’s reflection could be structured around 5 pragmatic questions that address the current major challenges:

=> When should operation re-start and at which speed?

A: Are my industrial assets able to operate?

  • Are new sanitary conditions in place?
  • Do all human resources master key competencies available?
  • Have all industrial tooling been properly shut down before lock-down and are they able to restart?

 

B- What is the level of my customers’ demand?

  • Have pre-COVID demand forecasts been updated by customers?
  • Have all contractual terms been respected regarding customer flexibility?
  • Has the production schedule been updated with post-COVID forecasts?

 

C- How much would it cost to restart production at low speed vs stop it for few weeks?

  • What is the magnitude of the impact on variable costs?
    1. Reduced efficiency
    2. “Going backward” effect on the learning curve
  • What is the impact on fixed costs?
    1. Facilities
    2. Production support (e.g. Management, Quality, Engineering)
  • What are the transition costs?
    1. Industrialization study
    2. Workforce sizing adaptation
    3. New stock capacity

 

D- Will my supply chain be able to support my new production plan?

  • What is my current production coverage?
  • What is the willingness of my suppliers to support me, for how long?
  • What are the expected extra costs to secure their deliveries?

 

E- What are the indirect effects?

  • What will be the decision impact on my public image?
  • What will be the cash impact in the short term but also in the medium term?
  • What is the risk of loss of competencies in the medium term?
  • How will the decision impact my bargaining power versus suppliers?
  • What are the risks and opportunities of adaptation of the global industrial footprint?

 

=> Behind these questions, some key parameters are at stake and should drive the COO decisions:

 

A: Are my industrial assets able to operate?

  • The minimum level and frequency of operations to sustain technical skills
  • The range of operations of my tooling, not designed for low speed

 

B- What is the level of my customers’ demand ?

  • The reliability and variability of my updated demand forecast
  • My ability to loop back with actuals to adapt with a high reactivity my production plan

 

C- How much would it cost to restart production at low speed vs stop it for few weeks?

  • The procedure and related costs to shut down my industrial assets
  • The variable part of my fixed costs
  • The duration needed to transfer/concentrate competencies into a smaller production team

 

D- Will my supply chain be able to support my new production plan?

  • The drivers (and related costs) of non quality of suppliers
  • My internal capacity (and related costs) to secure their deliveries

 

E- What are the indirect effects?

  • The extend of the (positive) WIP reduction impact on cash when ramping down
  • The possible phasing over time of the adaptations on the global supplier footprint

Once the decision is taken, the COO shall maintain a regular cross-functional governance to adapt if needed the selected scenario to the constantly evolving situation. This will enable him to perform a close surveillance of these key parameters and make the necessary adjustments in a very agile way.

CYLAD can be your hands-on business partner and support your crisis and restart management. Let us talk about it.

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