- The lack of visibility into suppliers has complicated supply chain planning for Cummins, as suppliers located in countries with more aggressive quarantine measures have temporarily shuttered operations leaving manufacturers, in some cases, to look for alternative suppliers, Cummins executives said this week in a presentation with Jefferies.
- "I want to emphasize that Mexico has me concerned, just as an economy," Cummins COO Tony Satterthwaite said during the event. "Because their COVID lockdown has been one of the most heavy handed ... India has some of the same characteristics, but India is showing more flexibility in gradually lifting the business lockdowns and letting manufacturers get back to work."
- Cummins will ship engines made in the U.S. into Mexico where they go into truck plant assemblies with some of the final products returning to the U.S., executives said on the call. Cummins is currently working to restart its factories in Mexico and India and hopes to get production back "in the next couple of weeks," Satterthwaite said on the company's earnings call the day before the Jefferies presentation.
The coronavirus pandemic highlights the lack of visibility into suppliers for many manufacturers. Disruptions began when factories across China shut down as part of lockdown measures. With China reopening, the concern shifts to other countries.
"All of our manufacturing facilities in China were fully operational by the end of the first quarter," Cummins CEO Tom Linebarger said on the call.
Details are hard to come by on what suppliers are shutting down, why suppliers are shutting down and what suppliers are doing to keep their workers safe during a pandemic, Satterthwaite said.
"We have a broad and big supply base and we don't know all the things about it I wish I knew," he said.
Last month, 320 manufacturing companies sent a letter to Mexican President Andrés Manuel López Obrador asking that he allow the suppliers for critical industries to operate. Currently, manufacturers are allowed to operate if they are the end manufacturer of a critical product, not if they are a supplier to the end manufacturer, according to Politico.
Hundreds of manufacturing plants across Mexico are closed. Some that remain open face demands from workers to close over the fear of infection, according to a report from Resilience360. Mexico saw a 40% decline in exports in April, according to the report.
Protesters requested the Ministry of Labor examine work places to determine essential business status, according to the Resilience360 report. The report says companies will need proper paperwork to open operations and be considered essential and suggests it should be done in an open dialogue with local unions.
Workers in Mexico are frustrated by the demands from U.S. companies to reopen. "These companies are worried about their supply chains, but it’s the workers who are dying," Susana Prieto Terrazas, a labor activist in Ciudad Juárez, told The Washington Post. "And if all they do is export, how is that essential to Mexico?"
Cummins has been able to find alternative suppliers and sources, which it has been doing since production in China shut down at the end of January, Satterthwaite said, adding that he's been told multiple times "we're a week out from running out [of inventory] and then all of a sudden a week later, we found some way to fix the problem."