Peugeot Creates a War Room to Battle Coronavirus Disruption

(Bloomberg Businessweek) -- Every weekday morning at 8, a team of executives at French carmaker PSA Group gathers in a room an hour’s drive west of Paris. Others dial in remotely, and for the next few hours, the team huddles to plot a path out of the massive supply-and-demand crisis caused by the new coronavirus ripping through the global economy.

For a well-oiled machine like PSA, with its 173,000 employees, multiple brands including Peugeot, Citroën, and Opel, and parts sourced from 6,000 suppliers around the globe, the risk of disruption is significant. Each car is typically made up of 4,000 components delivered just in time for final assembly. Just one missing item can have devastating consequences for an entire vehicle plant, slowing or forcing changes to manufacturing and output or even grinding a complete line to a sudden halt.

So when the virus brought China’s car parts industry to a standstill, and the seriousness of what was happening in locked-down Hubei province became clearer, PSA switched into crisis mode. It settled on one location to pool together senior managers and help them devise an action plan, says Maxime Picat, PSA’s head of Europe. “We chose one room and called it the war room,”  he says. “We said war because we wanted people to understand that the pace of what happens inside has to be different from normal.”

While some managers are on-site for the meeting, the gathering is largely virtual, with most employees dialing in. It’s a deliberate choice to minimize close contact among people in a bid to contain the virus, which is rapidly taking hold across France and the rest of Europe. Managers from all aspects of production, including supply, purchasing, and engineering, participate. Particular emphasis is placed on those who can compile data on where and when parts are needed.

Much of the work has focused on “deep dives” to identify workarounds: Do suppliers have other production sites, can parts be sourced from a different subcontractor, can some components be eliminated? Carmakers in crisis “will need to find solutions with other suppliers, and this won’t always be possible,” says Felipe Muñoz, an analyst at Jato Dynamics, a research service focused on the industry. “They may realize that putting all their investments in one market is risky, and I’m sure they will be thinking hard about that in the future.”

Senior Peugeot executives who take direct charge of pressing bottlenecks have been granted full power and resources to fix an issue. In some cases, parts have been brought in via air instead of by road. But air cargo is more expensive and risks driving up costs over time. The company is also monitoring its product mix, potentially cutting back on variants such as diesel cars, and increasing hybrid or gasoline models. “We have a long list of issues, but we’ve managed to keep production going,” Picat says. “We could fail one day. So far so good.”

For PSA Chief Executive Officer Carlos Tavares, avoiding a shortage in components, models, or workers and keeping factories on course is crucial this year. He’s in the middle of pulling off the biggest industry deal in more than two decades, a merger with Fiat Chrysler Automobiles NV to create the world’s fourth-largest carmaker. With a reputation for efficiency and delivering industry-beating profit margins, Tavares has enjoyed PSA’s full order books and plants running at maximum capacity.

Like many corporations, PSA has taken some precautions to protect its workforce from the virus. Visitors are required to fill in questionnaires asking about recent travel to China, Italy, and other coronavirus hot spots. And Tavares himself refrains from too-direct contact with others. At a press briefing last week, he kept his distance, standing on a stage to address a room of journalists seated on chairs placed far apart from one another.

The war room gatherings have already helped PSA avoid some breakdowns. When a manufacturer in Hubei stopped supplying parts for rear vehicle sections, PSA’s engineers searched through the car’s development phase and tracked down prototype machines that could stamp out the parts in sufficient quantity—albeit at a slower pace—to fill the gap until the Chinese partner started up again. Turns out, the replacement machine was in Milan, in northern Italy, the epicenter of the European virus outbreak and now in a government-mandated lockdown. “We managed to get the machines to another Italian supplier, so it all worked out in the end,” Picat says. That was before March 9, of course, when all of Italy went into lockdown.
 
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To contact the editor responsible for this story: James Ellis at jellis27@bloomberg.net

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