MIM Dissertation 2019 20 PDF

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Masters Programmes 2020-2021 Dissertation Cover Sheet Degree Course:

Master In Management

Student ID Number: Title: “The Constraints and Success Factors of UK Businesses Reallocating Production Capacity to Make Vital Medical Supplies During COVID-19”

Dissertation Code:

IB9BFM

Submission Deadline:

07. September 2020

Word Count:

8,000

Number of Pages:

85 (Including Cover Page and Appendix)

“I declare that this work is entirely my own in accordance with the University's Regulation 11 and the WBS guidelines on plagiarism and collusion. All external references and sources are clearly acknowledged and identified within the contents. No substantial part(s) of the work submitted here has also been submitted by me in other assessments for accredited courses of study, and I acknowledge that if this has been done it may result in me being reported for self-plagiarism and an appropriate reduction in marks may be made when marking this piece of work.

Warwick Business School The University of Warwick Coventry CV4 7AL United Kingdom

w wbs.ac.uk t +44 (0)24 7652 4306 e [email protected]

INTRODUCTION

INTRODUCTION ..................................................................................................................... 1 OVERVIEW ............................................................................................................................. 2 LITERATURE REVIEW ........................................................................................................... 4 RESEARCH METHODOLOGY ............................................................................................... 9 DATA ANALYSIS................................................................................................................... 13 SECTION 1: CONSTRAINTS ............................................................................................ 13 1.

Supply Chain and Trade Constraints ..................................................................... 13

2.

Production Constraints ........................................................................................... 14

3.

Regulatory and Certification Constraints ................................................................ 15

SECTION 2: CAPABILITIES AND RESOURCES ............................................................. 16 Capabilities ........................................................................................................................ 16 1.

Supply Chain Management Capability ................................................................... 16

2.

Production and R&D Capability.............................................................................. 17

3.

Organisational Capability ....................................................................................... 18

Resources .......................................................................................................................... 18 1.

Human Capital, Intellectual Capital and Labour ..................................................... 18

2.

Regulatory Approval and Certification.................................................................... 19

3.

Equipment, Machinery and Technology ................................................................. 20

4.

Raw materials and components ............................................................................. 21

DISCUSSION ........................................................................................................................22 LIMITATIONS AND SUGGESTIONS FOR FUTURE RESEARCH ....................................... 26 CONCLUSION ....................................................................................................................... 27 WORKS CITED .....................................................................................................................28 APPENDICES........................................................................................................................ 33

INTRODUCTION The novel outbreak of the COVID-19 pandemic (Sars-CoV-19) in January 2020 has caused an unprecedented and unexpected international health crisis and shock to the global economy. COVID-19 can present a mild infection (similar to a common cold) to Acute Respiratory Distress Syndrome (ARDS), organ failure and death (Inyegar et. al.:499). The impact of COVID-19 on the United Kingdom’s National Healthcare System (NHS) and economy was largely disruptive. To this date (August 15nd, 2020) there have been 41,358 reported deaths and 316,367 confirmed cases in the UK alone. (John Hopkins University and Medicine, 2020). In Quarter 2 2020, UK gross domestic product (GDP) decreased by 20.4% (Office for National Statistics, 2020). Whilst a number of industries have been impacted; we focus on the medical industry. During the escalation of the pandemic in Quarter 1 2020, the service and production capacity of the NHS and UK medical industry was put under intense pressure. The rapid explosion in local demand of medical goods and services was met by a collapse in international supply, which created a broad demand-supply gap (Baldwin, 2020). In this paper, we analyse the challenges and success factors of businesses operating in the UK in expanding and repurposing production capacity to supply the shortages of vital medical supplies, focusing on the product categories of hand sanitizer, PPE face masks and visors and ventilators. Considering that this phenomenon is on-going, the time frame studied is defined as the beginning of the UK lockdown (May 23rd, 2020) to August 15th, 2020.

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OVERVIEW

Applying the PESTEL analysis framework, it is apparent that the outbreak of COVID-19 primarily had political, economic, and legal implications for the UK medical industry (See figure 1). The UK lockdown was announced on March 23rd, 2020 and the peak of infections was reached on April 22nd, 2020 (Gov.UK, 2020a). In the UK, ‘flattening the curve’ was an important policy incentive to prevent the treatment capacity of the National Health Service (NHS) from being breached. (The Royal Society of Medicine, 2020) Hence, vital medical and sanitary equipment like ventilators, PPE face masks and visors and hand sanitiser were coveted commodities, as they play fundamental roles in decreasing the rate of infection and increasing the treatment capacity of patients in critical condition (Department of Global Communications, 2020). However, resulting from the pandemic’s scale and global impact, there was an international shortage of vital medical and sanitary equipment, which had contagion effects on the UK medical industry. Over 50 countries were restricting the export of certain critical supplies and raw materials by March 2020, which disrupted international trade and supply chain networks and led to rising prices of critical medical supplies (Doherty and Botwright, 2020). Additionally, the lockdown froze the production output of the world’s manufacturing hub (East Asia) and UK-based facilities. The combination of the rapid explosion in local demand and collapse in international and local supply led to a broad demand-supply gap (Baldwin, 2020; Ranney et. al., 2020).

The demand-side shock to medical and sanitary products has created a unique and novel challenge for the UK industry. The unprecedented scale of the pandemic’s impact has led many leaders to compare the global response to the virus to war-like measures, where countries shifted production capacity to defend themselves and engage in war efforts (Bain, 2020). In this spirit, UK businesses have geared their production towards bridging the demandsupply gap for vital medical and sanitary equipment. The UK medical industry is highly regulated and there are strict approval and certification measures in place to ensure equipment is adequate for clinical and personal protection use (Gov.UK, 2020b; ibid., 2020c; ibid., 2019). However, there are no regulatory roadblocks in place preventing non-specialist firms from making medical supplies (Pearce:10), enabling cross-industries collaboratives like the UK Ventilator Challenge (Powerscourt Group, 2020). Therefore, the UK economy has the unusual characteristic, that not only existing manufacturers of medical and sanitary equipment are expanding their production output, but non-specialist businesses are also repurposing to participate in cross-industry efforts (Gomez et. al., 2020). In the process, companies have faced many challenges, encountering (1) production constraints, (2) supply chain and trade

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constraints and (3) regulatory/certification constraints. Considering the intense pressures of the macroeconomic environment, these challenges have the potential to delay the process and even lead to failure. Successful businesses possessed capabilities and resources, “success factors”, which allowed them to overcome these challenges effectively. Considering the established research context, the aim of this dissertation will be to answer the following two research questions:

1. What constraints do UK businesses have in reallocating production capacity to supply the local shortage of vital medical supplies during COVID-19? 2. What resources and capabilities of UK businesses have constituted success in reallocating production capacity to supply the local shortage of vital medical supplies during COVID-19?

With the purpose of narrowing the scope of this dissertation, the discussion will relate to three product types: ventilators, PPE face masks and visors and hand sanitiser. In order to increase the speed at which critical medical supplies can become available on the market, the UK government has loosened the regulatory environment. Appendix 1 shows an overview of the pre-COVID-19 regulatory environment and changes in response to COVID-19 for the product categories studied. Figure 1 summarises the listed political, economic and regulatory factors impacting the UK medical industry during COVID-19.

•UK Government announces lockdown to "flatten the curve" on March 23rd 2020 •50 governments worldwide restricting export of raw materials and mecial supplies

Political

•Economic Recession (-20.4% UK GDP decline in Q2 2020) •Rising prices of COVID-related raw materials and vital medical supplies Economic •Collapse of international trade networks and supply chains

•The UK healthcare industry is highly regulated •No regulatory roadblocks to prevent non-specialist firms from making medical supplies •Further in regulatory environment for medical products to increase the Regulatory speed atchanges which products become available on the market (Appendix A).

Figure 1. Summary of Political, Economic and Regulatory Factors (PESTEL)

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LITERATURE REVIEW Considering the novelty and unprecedented nature of the COVID-19 outbreak, the research questions of this dissertation remain unaddressed by existing academic literature to this date (August 15tht, 2020). With the purpose of clarifying the scope of this review, secondary literature published after August 15th, 2020 will not be reviewed. Production systems for vital medical equipment during COVID-19 has been identified as a major area for research (Haleem et. al.:1524). Considering the vast amount of grey literature available online and the academic malpractice of “speed science” during the pandemic (Sharma, Scarr and Kelland, 2020), the literature review must be constructed critically. This is because many of sources have not undergone the peer-review process, which is important in clarifying the credibility and verifiability of authors’ research.

In the first step, we zoom out by discussing the existing discourse on the reallocation of production capacity during COVID-19. We also connect the literature to broader scope management thinking. In the second step, we zoom in, focusing on literature relevant to addressing the research questions. The Theory of Constraints (TOC) and the ResearchBased View of a firm are highly relevant to the research areas of “constraints” (RQ1) and “capabilities and resources that constitute success” (RQ1) 1.

Zooming Out

Reconfigurable Manufacturing Systems (RMS) and Supply Chain Management In the academic literature, there are two predominant approaches to understanding the supply shortages of vital medical equipment during COVID-19. The first relates to how medical and sanitary equipment should be allocated to consumers and healthcare systems to maximise the effectiveness of treatment and minimise the spread of the virus (Rowan and Laffey, 2020; Khot, 2020; Lee et. al., 2020, Ranney et al., 2020). The second approach has high relevance to the research topic – it explores how businesses can reallocate production capacity to

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See Research Methodology (p. 9)

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produce vital medical and sanitary equipment. Recognising the gaps in existing academic literature, the review is supplemented with grey literature where necessary.

Reconfigurable Manufacturing Systems (RMS) exists in academic discourse outside of the context of the COVID-19 pandemic. The paradigm was coined by Dr Yoram Koren in 1999 and is a design for rapid response to market changes or intrinsic system changes through adjustable hardware and software components (Koren et. al., 2003, Koren and Shpitano:2). RMS has six core characteristics: modularity, integrability, flexibility, scalability, convertibility and diagnosability (Koren:27). During the coronavirus pandemic, the market change in the RMS model is a demand-supply shock in the medical industry and the intrinsic system change is the process businesses undergo to reallocate production capacity to manufacture vital medical supplies.

Modern manufacturing systems are geared towards “lean production”, a concept that was coined in 1988 to increase productivity, cut costs and eliminate waste in plants (Krafcik, 1988). However, such large-scale manufacturing systems aimed at mass production lack the flexibility for large-scale ad-hoc reconfigurations (Quamar et. a., 2018), which are required to expand and reallocate production capacity to supply the national shortage of vital medical and sanitary equipment during COVID-19 (Malik, Masoor and Kousar, 2020a, Gomez et. al., 2020). As a result, the literature suggests the need for RMS, which can facilitate rapid and temporary scaling up and repurposing of idle production capacity. Malik, Masoor and Kousar suggest the use of human-robotic collaboratives and technological enablers like modularisation, “ready to deploy” hardware, software templates and digital twins to increase reconfigurability in manufacturing systems to supply the shortage of ventilators. (2020a; 2020b) This would lead to “faster integration, reconfiguration and safety validation” (ibid., 2020a:4). Such systems can be reprogrammed to repurpose non-ventilator to ventilator production, ramp up existing production, respond to changing regulatory environment and demand and increase overall system resilience. (ibid.)

System resilience and reconfigurability also relates to the ability to reallocate supply chain networks effectively. In the academic discourse, there have been many theories of supply chain management, however the relevance of two major conceptualisations of supply chain capability are evaluated in this context: Lee’s Triple-A Supply Chain, focusing on the characteristics of “Agility”, “Adaptability” and “Alignment” (2004) and Christopher’s 4R Supply Chain Model of “Responsiveness”, “Reliability”, “Resilience” and “Relationships” (2016). The models are similar in all aspects except for the “Relationships” dimension in Christopher’s model. Considering the importance of maintaining relationships with suppliers due to the

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market pressures during the pandemic, Christopher’s model will be prioritised in the Discussion.

Collaboration and Open-Source Innovation During the COVID-19 pandemic, a history of aggressively protected patents and monopolies of suppliers have given way to open source scientific hardware proliferation in medical equipment (Pearce:3). According to the literature, open-source and 3-D printing must be explored to the maximum in manufacturing to overcome the acute shortage of ventilators and PPE face masks (Inyegar et. al.:501, Rowan and Laffey:7). The accessibility and use of standardised designs (Bonvoisin et. al., 2020) of open-source innovation makes it of interest to businesses participating in cross-industry efforts in the UK. The most popular enabling technologies are fused filament fabrication (FFF)-class of desktop 3-D printers and Leitat-1 technology (Inyegar:501; Pearce:3). Despite its merits, open-source innovation must be considered with caution as a viable source for medical hardware design during COVID-19, because peer-reviewed open-source systems often lack complete documentation, are in the early design stages or haven’t been tested (Pearce:10). Additionally, a weakness of opensource hardware designs is its use by non-specialist firms in the UK. Repurposing companies may fail to meet medical standards and produce faulty equipment, because they lack specialised expertise in manufacturing medical hardware (Bain, 2020; Gomez et. al.:4; Foster and Pooler, 2020). At worst, faulty equipment can cause ventilator-induced lung injury (Ricard, Dreyfuss and Saumon, 2003; Slutsky and Ranieri, 2013). Collaboration between governmental, scientific, public and corporate actors using the three points of “transparency, openness and cooperation” has been suggested to reduce the probability of failure (Lee et. al.:14).

Zooming In Resource-Based View: Resources and Capabilities

The ability of companies to repurpose production capacity for vital medical equipment during COVID-19 has been analysed through the resource-based view of a firm. (Gomez et. al., 2020; Bain, 2020). While the overall discourse addressing hand sanitiser and disinfectant is limited in the academic literature, it’s focus is on the capabilities and resources required to

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manufacture these products (Berardi et. al., 2020; Thomas and Bullied, 2020). The resourcebased theory is a management framework, which determines the resources and capabilities a company has to achieve a sustained competitive advantage (Barney and Clark, 2007). When reconfiguring production capacity in response to COVID-19, companies need specific expertise and equipment to deal with product complexity, regulatory environment and scale of production. If the gap between available resources and capabilities and requirements is too far, companies will not be able to bridge it. Therefore, companies focus on products closest to their current abilities (Heinzmann in Bain, 2020). Considering that most authors focus on specific products, the academic literature fails to address the different levels of complexity of manufacturing face masks, ventilators and disinfectants. The most cited types of resources relate to supply chain and sourcing of raw materials, production competences and equipment, capital and approval licenses (Bain, 2020; Gov.UK, 2020b; Thomson and Bullied, 2020).

Constraints and the Theory of Constraints (TOC) There is a trend in the academic literature to conceptualise businesses’ ability to reconfigure production capacity in terms of production, supply chain, trade and regulatory constraints (Bain, 2020; Gomez et al., 2020; Inyegar et. al., 2020; Malik Masour and K ousar, 2020a; Pearce, 2020). Thus far, the existing academic literature has failed to contextualise the vast amount of constraints of UK businesses reallocating production capacity to supply the shortage of vital med...