The Washington Post - USA (2020-08-02)

SUNDAY,AUGUST 2 , 2020 .THEWASHINGTONPOST EZ RE A19

thecoronaviruspandemic

medicalbusinessis in Milan, in

the middleof the hardest-hit Ital-

ian region.After the government

locked downthe Lombardyre-

gion on March 8, someFlexem-

ployees took testequipment

hometo continueworking.

Withthe Big Three automak-

ers having announcedplantclo-

sures on March 18, Flexreas-

signed to the ventilator effort

supplychainspecialists fromits

automotiveunit and otherproj-

ects thatfacedslowingdemand.

Workingremotely,ateam of 75

supplyspecialists at aColumbia,

S.C., manufacturingsite helped

secure neededparts.

Under normalcircumstances,

one of the customers,aPennsyl-

vania-based ventilator maker,

wouldhaveshipped Flexthe

equipmentto install in anewsite.

But since Flex’scustomer

couldn’t spareany production

equipmentamidthe crisis,work-

ers in Pennsylvaniawalked the

existing assemblyline usingan

augmentedrealitysystem to cap-

ture each requiredstep.

LikeanInternet-agepaint-by-

numberskit, Flexused thoseim-

ages to replicate the original

manufacturingfacilityatanew

site in Juarez,Mexico.Working

24/7,the companyconverted a

1.2 million-square-footautomo-

tive parts warehouseinto amedi-

cal products factorybymid-April.

“Wehad to duplicate every-

thing.Typicallywe’d go up and

spend weeks in their facilities

learning all the detailsof the

productassembly,” said John

Carlson,presidentof FlexMedi-

cal Solutions. “Well, one, we

couldn’ttraveland,two,wedidn’t

have weeks.So we had to find

ways to do it virtuallyand do it in

days.”

Therollingshutdownthathad

started in China sent trade into a

free fall. April’s globaltrade vol-

umefell morethan12 percent

fromMarch,accordingtotheCPB

Netherlands Bureau for Eco-

nomicPolicyAnalysis,thebiggest

one-monthdropsincethoserec-

ords beganin 2000.

YetFlex’sglobaloperation con-

tinuedto heal. On May8,the

companysaid it had eked out a

$48 millionprofit on revenueof

$5.5billion for the firstthree

monthsof the year.

With all factories operating

and parts availabilityback to

normal,Advaithiand her team

debated howmuchof the pan-

demic-related changewould en-

dure.

Alreadythecompanyhadinsti-

tutedsomepandemiclessonsby

tweakingPulse. Flexcouldnow

filter its supplychainby specific

localities,not justthe countryof

origin.Pulse also includednew

information on suppliers’finan-

cial health,amissingdata point

thatthe lengthypandemicshut-

downsprovedessential.

Thefuturecourseof the pan-

demic,and the U.S. presidential

election in November,made

broaderconclusionshazardous.

But existing trendstowardgreat-

er regionalization of production,

especially in sensitive medical

and technologysectors,and less

relianceuponChina wereexpect-

ed to continue.

Evenbeforethepandemic,Flex

had begun leaningaway from

China in responseto ashifting

productmix and customers’de-

sire to have goods producedclos-

er to theirfinal destinations.

In 2015, 37 percentof Flex’s

global footprint was based in

China and just11percentin the

United States, accordingto the

company’ssecuritiesfilings.To-

day, the twonations’sharesare

almostequal:China has 18 per-

cent;the United States has 17

percent.(Flexspreadsthe restof

itsmanufacturingcapacityacross

countriessuchas Mexico,India

and Hungarydepending upon

customerneedseach year.)

Still,the pandemic’s likely im-

pactshouldnotbeoverestimated.

“Withoutbroaderpolicyshifts,

the worldwill returnto some-

thingthatmore closelyapproxi-

mates the pre-covid trade pat-

terns,”said economistBradSets-

er,who managed international

economicissuesfor the Obama

WhiteHouse.

Massivegovernmentsubsidies

couldchangethat. Japan’s gov-

ernment is providing$2 billionto

lure Japanesecompanieshome

fromChina. Former vice presi-

dentJoeBiden, the likely Demo-

cratic presidentialnominee,this

monthcalledfor “a moreresilient

domestic supplychain”topro-

ducedrugs,semiconductors and

electronics.

But thereis an unmistakable

trade-offbetweencostand effi-

ciency. Bringing supply chains

backto the United States or add-

ing redundancy, so that an out-

breakof diseasein one country

does not crippleproduction else-

where,wouldbe expensive.

“The real question is: Are peo-

ple going to be willing to pay

more to have certain things

made?” Advaithi said. “And who’s

going to paythe price?”

[email protected]

ed returningto work in early

February, another problem

loomed.Much of whatFlexpro-

ducedin China traveledto the

United States in the bellyof pas-

senger jets. But majorairlines

had canceled1millionflights,

causingair cargorates to spike.

Torrel calledon her ties to

airlinemanagersandhercustom-

ers to secure spacefor Flexprod-

ucts.

YetevenwithPulse, Torrel and

her teamwere operating amid

“the fog of war.” Many of Flex’s

Chinesesupplierswerephysically

unableto return to theirfactories

becauseof agovernment-ordered

quarantine,let alone confirm

purchaseorders.

On one 16-hour day, Torrel

foundherselfworkingintothe

evening,stillwearingthe paja-

mas she had sleptin the night

before.

On the dailycalls,arecurring

issueinvolvedthe buildupin in-

ventoryresultingfromthe patch-

workof operating factoriesand

shifting production needs.

“WhenAsiawasshutdown,the

restofour facilitiesaroundthe

worldwerestill manufacturing,”

she said.“Onepartcan bringa

line down,so you can have all of

yourproductavailableand one

[missingpart] preventsyou from

manufacturing.”

Stretchingsometimeslimited

supplies,Flexjuggledcustomer

demands.Butthecompanysaysit

never sufferedacomplete break-

down.

Othersweren’t as fortunate. In

earlyFebruary, aHyundaiplant

in SouthKorea closedafter run-

ning out of made-in-China parts.

One weeklater,the same thing

happenedto aNissan factoryin

Japan.

By Feb. 16, morethanhalf of

Flex’s Chinese workforce was

backon the job. But aproblem

thathad initiallyseemed con-

fined to China was metastasizing.

By late February, Italy —where

Flexhas threefacilities—was a

secondcoronavirushot spot.Bra-

zil, whereapopulistpresident

scoffed at the pandemic,would

eventuallybecomeathird.

Thecompanyappliedits China

playbooktothesecountriesasthe

virusspread, taggingaffected

parts and movingto reroutesup-

plies.

Flexwas makingprogresson

otherfronts, with component

shortages down by one-third

sincethe Feb. 22 peak.

By the end of March, inventory

had increasedby $101million

fromthe previousquarter,ac-

cording to regulatoryfilings.

Holdingextrainventory in an era

ofjust-in-timedeliveriesisexpen-

sive.Toconserve cash for a

lengthyrecession,Advaithiinsti-

tutedan across-the-board20 per-

cent salarycut for executives,

manyofwhomearnedsix-figures.

Thechief executiveabsorbeda

50 percentcutinher $1.1million

salary.

By March 20, threeof Flex’s

medicalindustrycustomers,in-

cludingPhilips,hadaskedwheth-

er the companycould takeonthe

jobofmanufacturingventilators.

Hospitalsin the UnitedStates

and aroundthe worldwererun-

ning shortofthe lifesaving equip-

ment.To meetthe urgent need,

Flexhad to redesignthe devices

to shrinkthe customary12to24

monthsneededto design,pro-

duceand secure regulatoryap-

proval for medicalhardware.

Theproblemwas thatthe engi-

neeringteamfor the company’s

al itemsusingadataanalytics

tool calledPulse.

Introducedin 2015, the cloud-

basedsystem gobblesdata from

88 sources,providingacohesive

viewofthe multinational’s opera-

tion.Arrayed on awall, 22 video

screensprovidednear-real-time

information on every.0005-cent

screwand each integrated circuit

costing hundredsof dollars.

Eachweekdayona5:30a.m.

conferencecall,Torrel and the

logistics teamjuggledpriorities

as the virusdisruptedtheirtight-

ly choreographednetwork.

From the start, theyflagged

everypartoriginating fromChi-

na,reconfirming orders with

bothsuppliersand customersto

makesure thateverythingthat

had beenorderedwas actually

being produced and was still

needed.

“I wantedto ensure...thatit

was true demandthatwewere

lookingat,” she said.

Forparts neededimmediately,

she scouredthe globefor alterna-

tive suppliers.After Chinesepro-

duction of acritical building

blockusedin manyelectronic

products driedup, Torrel’s team

foundavendorin Malaysia that

could makethe tinydevices

knownas resistors.

WhenChinesefactoriesstart-

plants’5,000workers to return

from holidayvisits to distant

hometowns. Many of his local

supplierscouldn’t resumework

becausetheydidn’t have enough

masksto satisfygovernmentreg-

ulations.

But Wang had morethanhe

needed.So he equippedhis sup-

plierswithmasks,cleaningsup-

plies and trainingmanuals.

“If theydon’t give us the ma-

terials,we can’tproduce,”hesaid.

“So we help them.”

Flexspent$52millionby the

end of March on coronavirus-re-

lated expensesand expects the

bill for the currentquarter to top

$100million.

Thepandemicall but ground-

ed Flex’sleadership.Rather than

takingtheircustomary700tripsa

month,managers boardedjusta

dozenflights.As air travel grew

too risky, Zoom callsfilledthe

gap, soaringto 226,000in April

fromabout63,000in December.

Thevideo conferencesbecame

so ubiquitousthatAdvaithi even-

tuallyissuedadirective requiring

aminimum15-minutebreakbe-

tween calls.

From aFlexcommandpostin

Milpitas,Calif., Lynn Torrel, the

company’schief procurementof-

ficer,monitored16,000suppliers

and morethan 1millionindividu-

in Chinesemanufacturingwould

imperilproduction for top com-

paniessuch as Google, Fiat

Chrysler,HPand Xerox, which

outsourceportionsof theirprod-

uctdesignand manufacturingto

Flex. Thecompanyproduceshos-

pitalbedsand surgical instru-

ments,desktopsand 5G commu-

nicationsgear,automotive dis-

plays and powerconverters for

hybrid vehicles.

In November,Trumpvisited a

FlexfactoryinAustin, where

workers assembleMacPro com-

puters for Apple. Thetour

sparkedaminortempestafterthe

presidentfalselyclaimedthe fac-

toryshowedhis “AmericaFirst”

policiesweresucceeding.

“TodayIopenedamajor Apple

Manufacturing plant in Texas

thatwillbring highpaying jobs

back to America,”hetweeted.

In fact, Flexhad beenmaking

MacPros in the plantsince2013,

and mostworkers who produce

Appleproducts werestill in Chi-

na.

Foundedin 1969,Flexemploys

roughly160,000workers world-

wide—more than Boeing.Its

27 millionsquarefeetofmanu-

facturing space would fill the

Pentagon four timesover.Annual

revenueexceeds$24billion.

On thatMondayinJanuary,

Advaithi’steam quicklyagreedto

orderenoughpersonalprotective

equipment—masks,gloves,tem-

perature scannersand handsani-

tizer—toequipFlex’s50,000

Chineseworkers. Just twoweeks

later,withmuch of China still

under quarantine, 3million

masksfromIndia, Malaysia, Sin-

gapore,Mexico and Polandhad

reachedFlex’sChineseoperation.

Theearly action paid off.

In China, Wang Ming,general

manager for Flex’sSuzhouand

Shanghaiplants,had kept skel-

eton crews workingthroughout

the holidaymakingsemiconduc-

tor equipment,telecomgear,CT

scanners and bedside patient

monitors,mostly for the Chinese

market.

As he soughtto resumefull

operations in early February,

Wang battled shortages of labor

and material.Acutoffofrail and

bus servicesto containthe coro-

navirusmadeit difficult for the

and LCDpanelswerenot quickly
resolved,production of awide
array of goods —including cord-
less vacuum cleanersand com-
puters—might grindto ahalt.
“Wehad aprettyseriousprob-
lem on our hands,”Advaithi said.
Whathad begunas aslow-
burning,localizedhealthissuein
one countrywas fastbecominga
majorrisk for the globalecono-
my.Companieshad to adapt—
and quickly—tooutrunavirus
thatwaschasingthemaroundthe
world.
Overthe next several weeks,
production specialists at Flexre-
created in Mexico an entireventi-
lator assemblyline fromthe Unit-
ed States by copyingimages cap-
turedon avirtual realitysystem.
Supplychiefs at acommandpost
in Californiatracked the status of
morethan 1millionparts usinga
wall-size, touch-screen display.
Andwith globaltravel all but
impossible,Advaithisubstituted
digital technologies for the
hands-oninteraction the virus
had renderedimpossible.
By earlyMay, Flexhad rede-
ployedhundredsof remotework-
ers, accelerated production of
medicalgear requiredto fight the
pandemicand scratchedits way
to anarrowprofit.
In Washington,President
Trump lambasted corporate
Americafor “these stupidsupply
chains”and saidthe pandemic
had provedhim righton the need
to bringfactorieshome.
“Wehaveasupplychainwhere
they’re madein all differentparts
of the world.And one little piece
of the worldgoes bad,and the
wholethingis messedup,”hetold
FoxBusinessin May. “I said we
shouldn’t have supplychains.We
shouldhave themall in the Unit-
ed States.”
But as Flex’sevolution demon-
strates, the pandemicdid not —
and probably will not —end
globalization.Instead, it turbo-
charged trendsthatalreadywere
in motionwhenthe virusfirst
flared,includingadiminishing
relianceon China.
Digitaldata —illustrated by
the proliferation of Zoom meet-
ings —grewevenmore vital for
executives,employeesand cus-
tomerstrying to coordinate their
actions. Softwareapplications
thathad beenusedfor yearsto
track production wereupgraded
to providemoregranularinfor-
mation aboutwhatwas happen-
ing thousandsof milesaway.
Likewise, manufacturersthat
had started movingfactories
fromChina, proddedby Trump’s
trade warsand rising Chinese
wages, reassessedtheirglobalop-
erations in light of vulnerabilities
exposedby the pandemic.
Armedwithdata and facinga
perilousworld,morecompanies
recalculated the balancebetween
costand resilience,between effi-
ciencyofproduction and certain-
ty of delivery, and imaginedaless
China-centriceconomy.
As thecrisisenteredits fifth
month,Bankof Americaforecast
“a much faster-than-expected
shiftinmanufacturingaway from
China.”The bank’sinvestment
analysts said37 percentof the
3,000 public companies they
track eitherhad madeplansto
shiftaportionof their supply
chainsor wereexpected to do so.
Flexalreadyhad cutits de-
pendence upon China by half
overthe pastfive yearsand ex-
pandedcapacityinothercoun-
tries,includingthe United States.
Itscustomers, the companysaid,
wereincreasinglydemandingre-
gionalproduction networks rath-
er than asingleglobalchain.
Themoves largely involved
lower-valuefinal assemblyand
testing,but the growingfootprint
outsideChina put the company
“aheadofthegame,”Advaithitold
investors lastmonth.
“You maysee apermanent
changeintermsof wherethings
are madeand whythey’re made
in acertain place,”she said.“Be-
ing closerto acustomermaybe
important in termsof yourloca-
tion of manufacturing.”
But first, companies must
learn to survive aonc-
e-in-a-centurycalamity.
Advaithi had justreturned
from aChristmasholidayinIndia
toher homenearthe company’s
U.S. headquarters in San Jose
whenshe was alerted to aprob-
lem thatwould become,she later
said,“probablythe mostdifficult
timein my 30 yearsof working.”
In aJan. 13 call withFrancois
Barbier,Flex’shead of operations,
the formermechanicalengineer
learned thatthe coronavirus
spreadingacrossChina showed
no sign of abating.
“Theycame into the meeting
with alot of data and information
thatIwas surprisedwith,”she
said.
At thatpoint,therewereal-
readyrumors thatthe Chinese
governmentmightorderfacto-
ries to remainclosedafter the
annual Lunar NewYear shut-
down.An extendedinterruption

GLOBALFROMA1

Firms adapt by looking beyond China

FLEX

FlexCEO Revathi Advaithi visits afactoryinGuadalajara, Mexico.Flex has18percent of its manufacturing capacity in Chinaand

17 percentinthe United States, withthe restspread acrosscountries suchas Mexico, India and Hungarybased on customerneeds.

MANDELNGAN/AGENCEFRANCE-PRESSE/GETTYIMAGES

From left:WhiteHouseadviserIvankaTrump, President Trumpand Apple chief executive Tim

Cook touraFlexfactoryinAustin, where MacPro computersare assembled, on Nov. 20.

Source: BradSetser of the Councilon Foreign Relations,U.S. CensusBureau

LAUREN TIERNEY/THEWASHINGTON POST

Note:Each data pointisthe three-monthaveragecompared to the same period

inthe previousyear.

Pandemic era

The pandemichas drivendownimports to the U.S.

China Mexico Vietnam Malaysia

$100billion

50

No change

-50

-100

-150

Decrease in imports

Increase in imports

December 2016 May2020

December 2019

July 2018:U.S. placessweeping

tariffson Chineseimports

U.S. imports fromChinafell sharplyin the 2019tradewar. As Chinese

factoriesresumedoperationsafterpandemic-relatedclosures, they madea

partial recoveryeven as imports fromelsewheredeclined.