May 26 2020
To diversity, or not to diversify? That is the question many business managers have asked themselves amidst the COVID-19 (coronavirus) pandemic. While some businesses have developed diversification strategies in an emergency response to help weather an economic storm, others have made fundamental strategic changes as business processes have been completely transformed. The predominant reason for many businesses diversifying is to maintain a revenue stream and avoid unsurmountable cash flow difficulties, though some have placed the needs of the market at the forefront of their diversification strategies. Various businesses have pivoted from their usual output and reallocated resources to help provide the market with critical supplies. Whether due to unprecedented demand, inadequate domestic production capacity, or trade flow disruption, a shortage of medical resources and hygiene products has induced a ‘wartime effort’ among businesses to aid in the battle against the coronavirus. This article touches on which, how and to what extent industries have diversified to satisfy the need for ventilators, personal protective equipment (PPE) and hand sanitisers.
The government initially estimated the need for 30,000 medical ventilators, though this was later revised down to 18,000 as social-distancing measures were claimed to be working. It pursued a three-pronged strategy to source these: ordering newly designed models, scaling up production of existing ones, and importing machines from overseas. On 16 March, the government asked companies to help design and manufacture thousands of ventilators, in accordance with Medicines and Healthcare products Regulatory Agency (MHRA) specifications concerning the minimum clinical standards acceptable for ventilators used in hospitals. Many manufacturers responded to the government’s calls, banding together and allocating capacity to the production of ventilators.
Ventilator Challenge UK, a consortium of UK industrial, technology and engineering businesses, is exemplary of efforts to scale-up production of proven ventilator models already made by medical device specialists Penlon and Smiths. Manufacturers in the consortium, which also includes ‘key supply-chain enablers’, such as Microsoft and Accenture, have reallocated capacity and accelerated production of a MHRA-approved device design, which is based on existing technologies and can be assembled from materials and components in current production. On 2 April, the consortium, which includes Airbus, BAE Systems, Ford Motor Company and Rolls-Royce, broadcast its intention to produce at least 1,500 units a week of the Penlon and Smiths ventilator models ‘within a matter of weeks’. In comparison, Penlon and Smiths ordinarily have combined capacity for between 50 and 60 ventilators per week. On 5 May, it was reported that the NHS had access to over 10,000 invasive mechanical ventilators, an increase of 2,400 since the start of the pandemic. With the consortium alone reported to have received orders from the government for over 15,000 ventilator units, production is set to ramp up and help the United Kingdom edge closer to its 18,000 target.
Personal Protective Equipment (PPE)
As understanding of the pandemic has evolved, public health authorities have shifted their guidance on PPE requirements, which has accentuated an acute shortage of adequate resources. First published by Public Health England on 17 April, the Considerations for acute personal protective equipment (PPE) shortages document permits the reuse of PPE where there is deficient supply. It states that the reuse of PPE ‘should be considered as temporary until the global supply chain is adequate to meet the UK’s needs’, which indicates that the United Kingdom does not have enough PPE to match demand. Meanwhile, a survey authorised by the British Medical Association (BMA) between 3 and 6 April revealed just 12% of hospital doctors felt fully protected from the coronavirus at work, further indicative of a critical shortage in supply of suitable PPE.
The Department of Health and Social Care’s (DHSC) COVID-19: Personal Protective Equipment (PPE) Plan, published on 10 April, commits to sourcing and distributing adequate PPE to all healthcare providers that need it. However, without a large-scale domestic PPE manufacturing industry to draw on and with several countries placing export bans on the sale of PPE, getting everyone the PPE they need has been challenging. A key component of the government’s procurement response has been unleashing the potential of industry to make more PPE, calling on manufacturers to modify production lines and reallocate resources. Dubbed the ‘Make’ strategy, the government has encouraged domestic manufacturers to produce PPE in accordance with a technical assurance process formulated by the Health and Safety Executive and other regulatory bodies. On 9 May, the DHSC stated more than 200 potential manufacturers had been identified and many contracted to make over 25 million items of PPE. Meanwhile, the DHSC announced delivery had already started, including contracts for 2.5 million aprons a week. Examples of some of the support offered by manufacturers include the Royal Mint’s provision of over 1.9 million face visors over a six-month period; donations of over 100,000 pieces of PPE to the NHS and healthcare charities, manufactured or sourced by Burberry; and Bolle Safety, which manufactures protective eyewear, making and supplying 6.5 million visors.
Whether there is enough PPE is a vital question and one difficult to answer as the coronavirus situation continuously evolves. Nevertheless, efforts among manufacturers and UK industry to diversify and accelerate supply have bolstered the UK’s PPE stock. The DHSC reported on 10 April that, since 25 February 2020, over 761 million items of PPE had been distributed across the United Kingdom, while by 10 May, just over 1.2 billion items of PPE had been delivered to the health and social care system in England alone.
Since the government enforced the closure of bars and other on-trade establishments in late March, sales of alcohol have evaporated. Though growing alcohol sales in off-trade channels have provided some respite for spirit producers, with volume sales in UK off-licences soared by 31.4% month-on-month in March 2020 according to the Office for National Statistics, this has not been enough to balance the books for many distillers. However, amid a spike in demand for hand sanitiser, shrewd and agile producers have been quick to alter spirit blending processes and diversify into the alcohol-based sanitiser market, where strong demand and supply shortages present an opportunity to drive sales and simultaneously aid efforts in the battle against the coronavirus.
London-based boutique liquor brand 58 Gin said it ‘stopped gin production within hours’ of the government’s announcement of lockdown measures. While following the gin-making process in terms of purifying and bottling water, the company adds a blend of ethanol and other chemicals to denature alcohol, instead of adding botanicals to make gin. With HMRC now fast-tracking applications to make products such as denatured alcohol for hand sanitisers, an increasing number of licensed distillers have ventured into making hand sanitisers to keep the money coming in as the on-trade market remains shut and spirit sales dry up. Major spirit producers, such as William Grant & Sons and Diageo, have also begun producing hand sanitiser, along with businesses in other sectors of the economy. For example, leading chemical company INEOS, established a UK hand sanitiser factory capable of producing one million bottles per month within 10 days, and kick-started production on 31 March. However, it is spirit producers that have led the charge, and kept their businesses alive in the process.
When the coronavirus pandemic is no longer a global emergency, businesses that have begun producing ventilators, PPE and hand sanitisers will ask themselves another question – to diversity permanently, or not to diversify permanently? For many businesses, diversification into medical resource and hygiene product manufacturing will be temporary, with gin producers going back to producing gin at scale when demand for hand sanitisers abates and the on-trade market reboots, and aircraft engineers turning their focus away from ventilator manufacturing and back towards the design of airliners once the aviation sector takes off. However, with the pandemic forcing firms to become more agile, companies that have diversified have now been exposed to new markets they may not have otherwise considered. Savvy business managers would be wise to evaluate how feasible, in terms of cost, operational capacity and lead generation, it may be to remain in the hand sanitiser market, considering demand will likely remain high post-coronavirus, or to re-enter the PPE and ventilator manufacturing markets if a future pandemic emerges and if called on by the government to accelerate market supply. However, current diversification among UK industry is an emergency response to a short-term spike in demand. Accordingly, it is likely those that have diversified will steer resources back towards their usual output once market conditions return to normal.