Looking at the global challenges facing businesses from the COVID-19 outbreak. We are seeing a lot of businesses going into ‘a deep freeze’, unsure of what they can do now and hoping their customers return once the crisis is over.
If you wait until things turn the corner to act, it will take your business longer to recover than those who were ready and it might result in you losing market share to your competitors permanently.
I wanted to set out what businesses should do in order to navigate their path through this.
Actions to take now
- Set up a cross functional ‘crash team’ to assess the risks daily and act quickly. This team should have representatives from Finance, Sales, Procurement, Supply Chain, Demand planners IT, Operations etc. It should have the mandate to make agile decisions to react to immediate the issues and risks and to take the strategic decisions to ensure your business is ready for the new normal.
- Re-run your risk assessments. Understand who in your customer and supply chain has been most affected by the lockdowns and what risks they are exposed to, i.e. liquidity, labour shortages, component bottle necks, material scarcities.
- Review your stock on hand, on order and in transit. If like a lot of companies, you source products and materials from China you have seen the supply dwindle whilst they went through their COVID-19 restrictions. These orders will begin to be shipped over the next couple of months. It is worthwhile reviewing the overall situation to understand the impact on your working capital, and whether you will be able to turn this stock during this period. Adjust orders if possible, to realign to your new demand patterns.
- Use this revised plan to draw up your mitigation activities. This should include when the global regions will be getting back to work, delay purchases on raw materials to preserve cash flow, diversify your supply base and your route to market.
- Look at your supply chain at a deeper level than your immediate suppliers into their supply chain to understand the risks to your business. Will, for example, your IT service support be able to operate? will they have access to hardware (there are currently 3-month delays on laptops and some offshore support centres are off-line owing to the 21-day lock down in India).
- Understand your contractual commitments. Are you tied into supplying/buying minimum order quantities that you will not need, what does the Force Majeure clause permit you to do in this type of event?
- You should look to trim waste in spending where possible. However, do not terminate contracts with suppliers who you will want to require when things get back to the new normal.
How to manage the Recovery
- Set up a dialogue with your key suppliers share your plans with each other. Consider developing joint plans with you strategic suppliers and ‘war-game’ some scenarios with them. The recovery may not be a quick one and COVID-19 may come back as people emerge from lockdown, thus hitting your supply chain again.
- Review the demand to match your ability to fulfil. Demand will be up and down for the next 12 months. Once the restrictions are lifted businesses will be looking to bolster their own safety-stock, they may even be over ordering to boost their chances of getting something. Spend time looking at these demands and allocate according to what you think they need, rather than what their MRP system has told them to buy.
- Anticipate the next 12-18 months. The hotel and travel sector they are not expecting to be back to pre COVID-19 levels until Q1 2021. This recovery will be regional with Asia leading the return. However, there will not be a return to business as usual, the amount of global conferences and delegates being able to attend will be considerably lower than previous levels. If you supply to the hotel industry and are using previous demand patterns as the basis then you will have a working capital problem. Build these macro scenarios into your recovery plans.
Final thought - use the experience as a way of managing your risk in a more robust way. Having a supplier risk management plan was sometimes seen as a tick box exercise to keep the audit committee or the regulator happy. It needs to be so much more than that now.
If you would like to know more, please get in touch rod.love@grnprocurement.com
If you would like to know more, please get in touch rod.love@grnprocurement.com
About the author
Rod Love – is an experienced Procurement director with a track record of 25 years working for global organisations in Financial Services, Insurance, Technology, Telecoms and Government. He specialises in operating process improvements, SRM/Vendor Management, 3rd party cost reduction, Supply chain, HR, Marketing, Travel services and large Procurement projects.