After Russia invaded Ukraine on Feb. 24, reports The Wall Street Journal ( April 12, 2022), many Western companies in Ukraine packed up and tried to transfer production elsewhere. The sudden stoppages raised concerns among Ukrainians that some of the factories would close for good. Leoni, which makes auto wire harnesses (simple but vital contraptions that help organize electrical and data wires in a car), came close to leaving too. Within hours of the invasion, the company shut its plants. It planned to shift production to Romania and other sites outside the country, uncertain when production would resume in Ukraine.
Some 70% of Leoni’s harnesses produced in Ukraine go to VW. So when production stopped, VW had to shut down some of its biggest plants in Germany.
After sending workers home, Leoni executives set out to duplicate the harness production lines in other countries. As well as Romania, Leoni has plants in Serbia, Slovakia and North Africa where wages and other costs are low. VW said it would assist in the effort financially and logistically, providing factory space outside of Ukraine.
But a strange thing happened. Workers began calling their supervisors asking to return to work. Initially, Leoni thought the security situation was too precarious to restart production. In the first days of the war, Russia had launched a barrage of missiles at targets across the country. (It takes only 16 minutes for a Russian missile to reach the area).
Leoni discovered it could rent an old abandoned nuclear fallout shelter. Despite being decrepit, the bunker was close enough to get the people out of the factory, into waiting buses, and to safety within 14 minutes. So on March 2, with much of the fighting concentrated in the east and Kyiv, Leoni restarted production. When the sirens blare several times a day, the workers run for the buses. They then hole up in the freezing shelters and wait for the all-clear.
By the end of March, Leoni’s plants were operating two shifts. Raw materials arrive on trucks and finished harnesses are then taken by truck to customers in the West. VW, which had shut much production in the wake of the invasion, said it could restart its idled factories in Germany sooner than expected thanks to Leoni’s efforts. “We are all deeply impressed by the courage of the employees at Leoni,” said a VW exec.
Classroom discussion questions:
- Evaluate VW’s harness supply decisions and how it should handle inventory now.
- What do you think of Leoni’s decision?