Volodymyr Khmurych: 5 Pandemic Consequences for Industry
In the interview for BYKVU web-based media, Volodymyr Khmurych, CEO of Bila Tserkva Industrial Park, communicated the key pandemic and quarantine consequences for processing industry.
After three years of balancing within an inch of uneasy growth of one and a half- two per cent, industrial production in Ukraine was cut by eight per cent, within the first half-year 2020. The worse performance in the real economy was merely in 2014-2015. Then, the production depressed nearly by 13%. Currently, the engineering, metallurgy and consumer industries appeared the more affected. By business interviewing results, up to 20% of the companies suspended their operations, 30% more cut production scopes and changed operation schedules. Other corona crisis effects for the industry may be conveniently classified into five trends.
Firstly, this is profit shrinkage and capital investment reduction. Under financial report data, the companies refuse from fixed assets up-grading programs and cut investments by 10-16%. Considering, how the producers acted in the earlier crisis environments, such performance, at the year end, may go down to 32-35%. The situation is complicated by the market demand decline, fall in prices for industrial products and net profit reduction. As a result, any investments into production expansion and new product release appeared out of season.
Secondly, growth of the costs for employee safety and health protection. From April 20, business came across with incidental expenditures. To secure the employee health, the companies acquire individual protection apparels and remote temperature screening systems. They carry on disinfection of production, office and warehouse premises. They plan construction site operations, in view of social distance. To diminish contact probability in municipal transport and prevent pandemic dissemination, the companies provide employee transportation to places of their work. The companies increase budgets for medical insurance services. Under particular calculations, the business expenditures for labor safety measures grew by 18-27% this year, compared to the previous year.
Thirdly, implementation of sustainable production principles. Corona crisis placed a greater producers’ focus on resource sustainability importance, raw material specific weight and waists reduction per product unit, and establishment of energy-saving production. The big business has financial and staff capacities to move to electrical energy, natural gas and water resources consumption cut. A package of measures in this direction is aimed at the product cost value reduction and support in integration into global production and marketing chains, having compensated thereby any financial losses due to lockdown. Particular food industry companies may be a perfect example of such integration, which implement energy management systems and open new outside target markets. The medium business has less own resources for a competitive product transformation and making, though it may rely upon support of, for instance, eco-industrial parks within the frame of global initiative by the United Nations Organization for industrial development.
Fourthly, security of supply chains. Ukrainian industry just enters into global supply chains, step by step, enlarging raw material export with high value added cost products. Agro-industry and pharmaceutical companies are the drivers in this area. Due to low integration level, this year supply chain failure relatively slightly affects operation of the companies. Foreign-owned companies are affected to a greater extent, companies with the national capital are affected to the less extent. Both business groups obtained crisis management case studies, which will allow to overcome economic challenges later on.
Fifthly, flow process and business process automation. The national industry appeared to be sensitive to the quarantine measures. Main part of the employees is occupied directly at production, with no feasibilities for remote working management. With the pandemic outbreak, the companies estimated digital transformation significance. By comments of metallurgic and pharmaceutical producers, establishment and utilization of resource planning systems contributed to business process efficiency maintenance in the quarantine conditions. In particular, part of the staff was able to continue working in remote mode. Essential process automation bet allowed to boost efficiency, having cut the employee participation during the whole production cycle.
This trend is just spinning up and presented at the pilot project level. Essential automation areas within the national companies are material transition by means of unmanned loaders and repeated task automation with industrial robotic computing utilization.
This is not enough to change the country economy in no time.
A wide expansion of innovative approaches requires low-rate lending and investment resources available, so as sophisticated production systems are capital-intensive enough, as a rule. Moreover, they also require efficient human and management resources. To gain all this, time, macroeconomic and political stability are needed, and active state involvement through target support programs is required.
To provide a greater ecosystemic effect, resource interchange and risk diversification in innovative production establishment, the companies pool in clusters in the form of industrial parks, engineering parks, free economic zones etc. At the cluster level, joint operation strategic planning capacities exist for two, five, ten years, as well as risk mitigation, more rapid and efficient resource interchange.
An extended version of the interview of the CEO of Bila Tserkva Industrial Park is available by reference.