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How worlds largest glove maker meets coronavirus demand The finance head of Malaysias Top Glove shares efforts behind the scenes in the companys production ramp-up. By Alexis See Tho17 March 2020 In late January this year when medical glove importers in China heard whispers of a virus outbreak that could potentially have widespread consequences, they reached out to Top Glove, the worlds largest rubber glove maker. At that time, phone calls to the Malaysia-based company were merely enquiries on delivery time and pricing. The calls didnt turn into orders, said Lim Cheong Guan, Top Gloves executive director, who heads the finance division, in an interview with FM. But things changed when the Chinese government started taking serious actions, he said, pointing to city and province lockdowns that prevented workers from returning to offices and factories after the Lunar New Year holiday. In February when the new coronaviruss death toll surpassed that of 2003s SARS outbreak, orders increased by 100% compared with the usual weekly orders from China. Singapore and, most recently, Italy had also started asking for more gloves. In such a case of an unexpected surge in demand, how is Top Glove planning its production ramp-up? Its not that simple The company produces 73.4 billion gloves a year and commands 26% of the global rubber glove market share. Its natural and synthetic rubber gloves are used by healthcare workers and food service workers, and in industrial settings. It sells to 195 countries, with the UK, Europe, and the US as its major export markets, closing 2019 with record revenue of MYR 4.8 billion ($1.16 billion) but a fall in profit due to increased competition and higher natural rubber prices. The doubling of February orders means that it has to make roughly 5.8 billion more gloves in the coming weeks just to meet Februarys additional demand. The usual lead time of 3040 days was stretched to 50 days. This month when FM reached out again, orders are now 120 days till delivery, and its factories utilisation rate rose to 95%, up from 85% in February. On the surface, a production ramp-up looks as simple as increasing inputs raw materials, labour, and cash. But the experience of one manufacturer, Prestige Ameritech in the US, has shown that swift increases in production could create a risk that could almost destroy a business, according to a US National Public Radio report. In 2009 at the height of the H1N1 flu pandemic, Texas-based Prestige Ameritech hired more workers and built new machines to increase surgical mask production. But the machines took months to complete, and by the time they were ready, the swine flu crisis had ended and demand had died out. To add to its woes, there was oversupply in the market, and hospitals didnt buy for months. The manufacturer almost went bankrupt, NPR reported. Protective equipment for healthcare workers is crucial to the fight against coronavirus. Earlier this month, the World Health Organization (WHO) urged businesses and governments to act swiftly to boost supplies of protective equipment, including gloves, medical masks, and respirators, for healthcare workers on the frontlines combating COVID-19, the disease caused by the new coronavirus. To meet rising global demand, the WHO estimates that manufacturers must increase production by 40%. For many companies, production ramp-ups can be make-or-break moments. Winners are those that can act quickly to capitalise on the short but sharp demand spike. For Top Glove, the upshot has mostly been positive so far. In many ways, the company is well positioned to benefit from the demand surge. New capacity every year It already had a months worth of raw materials in warehouses to kick-start production ramp-up. And its rubber suppliers are in Thailand and Malaysia the worlds largest and third-largest rubber producers, respectively which means that Top Gloves raw material supplies are secure amid current shocks to the global supply chains. A key factor now, Lim said, is to ensure that its suppliers in Thailand and Malaysia can also increase their raw material supplies to its factories. Its factories run 24 hours a day in three shifts, and its 44 plants located mostly in Malaysia typically have 10% to 15% of unutilised capacity a decisive factor that has enabled it to increase output at a moments notice. The question is why do its factories run at an average 85% capacity for most of the year? Is it by design? We dont target 85% [capacity]. Wed prefer 95% because its more efficient, said Lim, the executive director of finance. But because we build new production lines every few months, our capacity will continue to increase.

Were the largest glove manufacturer in the world. We need to have extra capacity. We cant run on 95% throughout the whole year, he added. Labour shortage Situations like COVID-19 [are] not new to the industry, said Shiv Dave, founder of Televisory, a Singapore-based consultancy. The industry has experienced the same situation during the SARS and H1N1 outbreaks, he said. But since the SARS and H1N1 outbreaks, the labour market in Malaysia has changed tremendously. Across the industry, getting thousands of workers to fill production lines in the coming weeks will be an immense challenge. In a recent note, a Maybank research analyst wrote that Top Gloves sales volume will grow at a pace slower than its sales orders because production is constrained by a shortage of workers. Malaysias rubber glove industry is heavily reliant on migrant labour from countries such as Indonesia, Nepal, Bangladesh, and Myanmar. Since last year, the countrys manufacturing sector has been experiencing acute labour shortages after the government imposed stricter labour requirements and cracked down on foreign workers without work permits. The move is to wean the sector off its dependence on low-skilled foreign labour as the country aims to become a developed economy. To balance increased capacity with workforce shortage, we estimate that the rubber gloves industry will require at least an additional 25,000 workers, Dave said. Its a difficult task in the short term. Top Glove is also especially careful in managing workers hours. Two years ago, news surfaced that some of its factory employees worked an excessive number of overtime hours beyond whats permitted under local labour laws, which the company denied. Lim, the head of finance, said that the company has improved its recruitment policy and that overtime hours are voluntary and in accordance with what is permitted by labour laws. To sustain long-term growth, the company has turned to automation. It has been pouring investments into research and development to increase automation and efficiency in its lines. Ten years ago, it needed 15 workers for every million gloves produced. The number is down to 2.5 workers today, and it can go lower, Lim said. Robotic arms have replaced human workers in pulling gloves off moulds and counting gloves. Workers are only needed at the end of the glove-making process to pack gloves in boxes.

A 4-month backlog Its largely a pull-demand strategy, where production is triggered by a customers order, instead of the traditional push-demand, where products are produced ahead of time according to projected demand. That means the company has avoided a glut in its warehouses. It has ready-stock available, but inventory is kept at a minimal level. But this strategy also means that theres currently a four-month order backlog. Lim, however, is not concerned with losing out to competition given that the virus has spread to more than 110 countries. Most glove makers are also operating at close to 100%. Last month, the WHO reached out to the Malaysian Rubber Glove Manufacturers Association, a local trade group, to receive assurance from Malaysias glove makers that they would increase production to prevent a global glove shortage. The industry is certainly in an oversold position right now but has not reached a pandemonium position yet, said Denis Low, president of the glove manufacturers association, according to a local media report. But to fill urgent orders, Top Glove is speaking to customers to see if priority can be given to countries that need gloves most at this time. Being ready with sufficient raw materials, workers, and a credit line to tap into if it needs a cash infusion is all it can do because predicting future demand is difficult given the nature of the pandemic. We cant forecast demand because we dont know how extensive or long this [virus spread] will be, and how much it has spread to other countries, Lim said. Whats important is to get ourselves ready, with lines prepared to process orders. He added if theres a need for new capacity, the company plans to speed up installation of production lines in a new factory that is part of its yearly expansion. Preparing for greater demand But Lim said the company is well aware of a possible oversupply in the market when the pandemic subsides and is prepared for that likelihood. Down the road we may have issues of a slowdown effect because [customers] may have ordered excess stock, and they have to clear the stock, he said. During this good time, we must also prepare for whats coming.

At the companys annual general meeting at the beginning of the year, Top Glove senior executives flashed a world map of glove consumption per capita on a huge screen. In a year, the US uses 150 glove pieces per capita, Italy 123 pieces, Japan 54 pieces, and China a comparatively minute six pieces. Top Glove and other glove producers in Malaysia may already be supplying three in every five pairs used globally, but they are banking on increasing hygiene standards and awareness, healthcare reforms, and the worlds ageing population to drive growth in the industry. And those are promising prospects for which Top Glove is laying the groundwork.

Question:

Describe the Demand Management Strategy that is undertaken by Top Glove and how does this strategy affects the capacity planning of the warehouse?