[MCN] One company saw the Covid-19 crunch coming

[Lance Olsen]

Bloomberg Businessweek March 30, 2020

At least one company saw the Covid-19 crunch coming: 3M, which will churn out more than a billion N95 respirator masks by the end of the year, according to our deep dive <https://link.mail.bloombergbusiness.com/click/19867253.23605/aHR0cHM6Ly93d3cuYmxvb21iZXJnLmNvbS9uZXdzL2ZlYXR1cmVzLzIwMjAtMDMtMjUvM20tZG91YmxlZC1wcm9kdWN0aW9uLW9mLW45NS1mYWNlLW1hc2tzLXRvLWZpZ2h0LWNvcm9uYXZpcnVzP2NtcGlkPUJCRDAzMjcyMF9CVyZ1dG1fbWVkaXVtPWVtYWlsJnV0bV9zb3VyY2U9bmV3c2xldHRlciZ1dG1fdGVybT0yMDAzMjcmdXRtX2NhbXBhaWduPWJ1c2luZXNzd2Vlaw/58ffbaf7dd4c29967b8b4646B2106786c> in this week's magazine. Since an emergency meeting in late January, the company doubled its mask production, namely because it had a lot of extra mask-making machines sitting around—so-called "surge capacity," a term we’ll be hearing on quarterly conference calls 10 years from now.

In a snapshot of time, on any particular financial statement, the idle equipment would be ill-advised—a chunk of expensive flab in an ultra-lean manufacturing environment. But 3M, with 171 factories in 36 countries, is big enough to carry the extra weight. Its seemingly surplus mask-making machines were a bet on fat-tail events, both an investment in would-be mask sales and a hedge against all the other parts of the business that would fall apart in a pandemic (see: Post-it notes and airplane paint).

This kind of worst-case planning is standard practice at a lot of companies. Consider Home Depot during hurricane season. Covid-19, however, will certainly turn a far broader range of CEOs into corporate preppers (at least it should).

For 3M, the use case wasn’t a stretch of the imagination. Its executives only had to connect the dots on previous pandemics. More recently, a rash of natural disasters, from earthquakes and hurricanes to forest fires, strengthened the mask math.

In addition to building up surge capacity, 3M also retooled its supply chains for resiliency, putting suppliers through emergency drills and sourcing more materials in regional networks around each plant. When China blocked the export of respirator masks weeks ago—including masks from 3M’s facility in the country—the company was still able to stamp units out of its plants in Nebraska and South Dakota. 

There’s a lesson here for a lot of industries and retail sectors. Factories of the future, like restaurants, will increasingly go local and stress-test capacity. Big Toilet Paper, please tune in.

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"Ignorance of remote causes disposeth men to attribute all events to the causes immediate and instrumental: for these are all the causes they perceive."

Attributed  to Thomas Hobbes
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“Teleconnections can be defined as linkages between climate anomalies at some distance from each other. The large distances in space and the differences in timing between these anomalous events make it difficult for one to believe that one event (El Nino or La Nina) could possibly have influence on the other (e.g. drought in southern Africa or hurricanes in the tropical Atlantic). Nevertheless, physical and statistical research has shown that such linkages do exist.”

Michael Glantz. Currents of Change : Impacts of El Nino and La Nina on Climate and Society. Cambridge University Press, 2001

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