SIOR Partners with CoreNet on its CoreNet Global Hackathon: A COVID-19 Virtual Ideation Experience
As a supporting organization of the CoreNet Global Hackathon, SIOR led a team tackling the challenges to manufacturing and industrial. SIOR's team leads, SIOR President-elect Patrick Sentner, SIOR and Amy Broadhurst, SIOR, CCIM, share how their team addressed the challenge of developing forecasts and key recommendations for corporate real estate professionals to address how the pandemic will impact the supply chain, stockpiles, and manufacturing going forward.
Learn more about the CoreNet Hackathon and the various issues and challenges that were addressed.
View more content from the Hackathon Challenge:
Manufacturing and Industrial: The Impacts and Ideas for Future Planning
By: Alexis Fermanis | SIOR Director of Communications
A
s we work through our new normal amidst a global pandemic, we have been forced to reconsider how we operate our businesses and daily lives. Any changes have ripple effects across our communities and local economies, but change is needed to survive, and so we adapt.
Crisis is the ultimate disruptor, change facilitator, and accelerant. Companies that were perhaps reluctant to embrace changes are now obligated to prepare and deliver new services. Innovations become abundant and creativity thrives. Areas like AI, Proptech, Automation and IoT are technologies we can’t ignore as we also explore a pandemic response strategy.
Recently CoreNet Global began its own processes of facilitating innovative change in the commercial real estate industry: the CoreNet Global Hackathon. The event, a COVID-19 Virtual Ideation Experience, developed as an opportunity for peers to collaborate and ideate while developing solutions that not only address the immediate crisis, but help establish long-term success for businesses, clients, and communities. Contingency planning and risk mitigation are crucial. By it's very definition, a hackathon brings together individuals to collectively develop solutions to problems for short and long-term goals, which is why CoreNet developed several areas to focus on, including: Space Utilization & Metrics, Distributed Work, Workplace Wellbeing, The Autonomous Workplace, Environmental & Climate Change, and Manufacturing & Industrial.
SIOR’s participation in the hackathon focused on the latter: Manufacturing and Industrial, something our members know quite a bit about.
To tackle the challenges poised in this area, two SIOR members—SIOR Global’s President-Elect Patrick Sentner, SIOR, and Amy Broadhurst, SIOR, both of CBRE in Pittsburgh, PA—collaborated to answer some critical questions impacting the manufacturing and industrial space.
“Vendors and contract providers of raw materials are the lifeline of manufacturing organizations and ensuring that the vendors are able to remain financially solvent is of utmost importance.
Supply Chain Impacts
The first question they tackled was: “Will the crisis prompt manufacturing companies to carry out a top-to-bottom review of their global supply chains with an eye toward reducing risks?”
According to Sentner, manufacturing and industrial organizations continually evaluate their supply chain for cost savings and risk reduction. As market shifts occur, the evaluation process becomes even more focused.
“The COVID-19 pandemic has ramped up the evaluation process to levels likely not seen in the past,” explains Sentner. “Supply chain adjustments are ongoing and date back to the tariff war. COVID will actually enhance those adjustments. We now have a significant need to better understand the financial solvency of their key supply line vendors.”
Any impacts seen in manufacturing and industrial organizations have been dependent upon product, company size, labor requirements, and location of operations. “It would make sense to believe that the primary supply chain-related focus for COVID-19 is to reduce the risk caused by COVID-19 contamination,” continues Sentner. “However, the reality is not that simple.”
“Vendors and contract providers of raw materials are the lifeline of manufacturing organizations and ensuring that the vendors are able to remain financially solvent is of utmost importance,” says Broadhurst. “When a vendor shuts down operations, organizations are then required to find replacement firms, or they must take control of the processes themselves.
A Manufacturing Return?
As adjustments are made, will manufacturing return to areas that lost factories to lower cost production sites?
“Potentially, depending on labor availability and the specific industry,” states Broadhurst. She explains that automation will require the right facilities and an educated workforce. In general, China is no longer cheap and hasn’t been for some time. Those that utilize Chinese manufacturers have specific reasons and are well aware of the risks. As many countries rush to develop products and services to take advantage of potential opportunities, the competition for the United States will always remain steep. “U.S. based companies need to consider more than economics when ascertaining the risks with items such as antibiotics of which 90% are manufactured in China. Is a reduced profit margin an acceptable consequence to ensure that the world has a steady, consistent supply of antibiotics?”
“COVID could have the reverse effect, causing more companies to invest in automation to have full control of their process,” adds Sentner. “One major change that will likely occur is the research into and ultimate implementation of automation and robotics. Concerns associated with job losses due to automation will potentially be offset with increased levels of jobs in these higher tech industries.”
An investment in automation would likely enhance a company’s existing technologies and help avoid many multi-layered risks. But additional risks such as regulatory issues and environmental shifts open up new production opportunities in countries normally off the radar. How will that impact manufacturing in the U.S and abroad?
“NAFTA countries most certainly will be examined more closely,” explains Broadhurst. “Mexico still has political instability and Canada has a higher cost of labor, but each will be of greater interest. Furthermore, there are concerns with Mexico regarding their unsettled political environment. This concern potentially could offset the benefits associated with Mexico including geography and the fact that the majority of all large U.S. manufacturers already have a presence in Mexico.
“Canada on the other hand has a more stable political environment, but overall, the labor costs are relatively high in comparison to many other countries,” Broadhurst adds. U.S. companies will need to decide if these concerns are low enough to risk adding additional portions of their supply chain from China to NAFTA countries. Foreign countries will continue to “recruit” U.S. based companies, and this will most certainly include some “off the radar” nations.
“Each and every organization needs to first and foremost decide on an acceptable level of risk. The risk level will vary greatly to each and every organization.
One final question posed during this challenge addressed whether governments will begin to offer new financial incentives to attract industrial jobs and investments as they see opportunities to capture projects that might have previously gone offshore and enable a more stable, controllable supply chain.
“As a nation, we outsource a large amount of production,” explains Sentner. “Will the government allow this to continue with pharmaceuticals and other medical products? What we do not know is how the regulatory environment is going to adjust and what consumer preferences will be as a result of the pandemic. Tax changes will certainly impact decisions moving forward and are believed to be a potential result of the COVID-19 crisis.”
“Governments, including state governments in the US and foreign governments, have recruited companies with financial incentives for decades,” adds Broadhurst. “Incentives will need to encompass the full spectrum of real estate development (real estate tax, employee tax, low or free rent, etc.) to offset potential risk issues.”
Both Sentner and Broadhurst agree that activities such as reshoring will be dictated by the United States’ threshold for stockpiling essential items while minimizing risk.
“There is a strong belief that firms will begin controlling the risk of their supply chain exposure by investing in automation,” says Broadhurst. “As organizations continue to evaluate overall risk during the pandemic, the supply chain concerns have been foremost in the thoughts of C suite executives across the globe. Overall, COVID-19 has been a wake-up call to many organizations related to their supply chain, while to others it has only highlighted how well their supply chains have been organized.”
Sentner adds, “First and foremost, each and every organization needs to decide on an acceptable level of risk. The risk level will vary greatly to each and every organization, but overall it is apparent that economics of manufacturing overseas will be evaluated by more than the ultimate cost of the product. The risk of government response to pandemics, the infrastructure of shipping and transportation, and the sustainable health and well-being of the work force must be evaluated as well as the production of cost.”
As they wrapped up the hackathon, Senter and Broadhurst left the following final thoughts:
- There will not be a wholesale change that occurs in the supply chain process. All of this is industry specific.
- There will be a quick onshoring of pharmaceuticals
- Supply chains will be scrutinized now more than ever with a new focus on audits of suppliers and customers.
To learn more about the hackathon and view results, click here.
SIOR Team Leads:
---
About the Author: Alexis Fermanis is SIOR's Communications Director, overseeing communication strategy and development. She also writes and presents for SIOR on occasion. Contact her at afermanis@sior.com and 202.449.8226