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Managing and Reversing COVID-19 Disruption to our Damaged Supply Chains and Cash Flow

COVID-19 has already brought plenty of disruption, and unfortunately, the worst may be yet to come. As a recession looms and industries spanning financial services and hospitality face a major collapse, crisis management has become essential.

The pandemic is the first black swan event to hit the economy since the Japanese earthquake of 2011, but this time the implications have been even more far-reaching. Health and safety regulations have destroyed supply chains, with fears that inflation will return with a vengeance. In this globalized world, you would struggle to find a company without links to the most affected regions.

To help you come out stronger on the other side, you need to be smart about how you manage your supply chain and cash flow.

Photo: Bermix Studio / Unsplash

Finances and cash flow management

In most countries, households fear the worst. With economic fallout on the horizon, 20% to 60% of household decision-makers worry about losing their jobs, meaning less spending.

In the United States, according to a recent survey conducted by Freshbooks, 54% of business owners have stated that demands for their products and services have slowed down as a result of the pandemic. Nobody would blame you for being a defeatist, but it’s not too late to take action.

Defer capital expenditure

Spending less money is probably the most obvious way to balance the budget, and many companies are already trying. Yet there’s more to this than cutting random costs and hoping for the best.

Try to be strategic. Reallocate capital expenditure from the projects most likely to be adversely affected to areas with more potential. Some form of costs-benefits analysis can be useful for figuring out whether the cost of stopping a project and its potential advantages justify the risk and time commitment involved.

Even if you continue, you may be able to allocate less money than you originally intended. Also, remember it’s easier to cut variable costs than fixed costs. Common examples of variable costs include hiring, travel (probably not your greatest priority right now anyway), and discretionary spending.

Check that your financing is stable

You might normally get financing from this or that source, but under such extreme conditions, you can’t assume your access will continue. Consumer lending has already been hit hard from COVID-19, and there’s no reason commercial lending won’t follow.

Agility

Do you think dramatic change is easier said than done in a constantly changing environment? Maybe your organization needs to become more agile to help grow during the ongoing pandemic. With government policy and business failures changing every day, the situation is dynamic, and there’s no time for endless Zoom meetings to decide. Test fresh business models, new products, or work on your operational efficiency.

Agility also involves turning attention to elements you might take for granted, like your ability to pay bills and turn receivables into cash. Nothing is a given anymore.

Photo: Pixabay.

Supply chain and partnership management

It’s impossible to make financial decisions in the current climate without also considering your supply chain. To some extent, COVID-19 has called the bluff of conventional supply chain management by damaging supply, demand, and operations simultaneously. Firms are subsequently being forced to tighten their operations.

Trading partners and customers

Thinking about customers’ or partners’ abilities to pay and offering as many payment options as possible is one of the top priorities that any organization should have in response to the pandemic. Also check the financial risks your trading partners face and ensure their letters of credit — normally a requirement for a contract — are still valid.

Plus, bear in mind that the operational decisions that suit your company may not be good news for everyone else — in fact, they could have a negative impact. Try not to shift risk or burden onto important partners or clients when you change your inventory or capital expenditure patterns.

If your partners are struggling, you could consider helping them by buying a stake in their company. Of course, this isn’t a decision to take lightly.

Inventory management

PPE equipment and face masks aren’t the only things in short supply right now. The pandemic may affect all industries differently, but there are shortages and disruptions across the board.

An excellent example is the textile industry, which has been forced to divert much of its resources and production to create more masks and PPE to try to make up for the shortage from demand, only to reduce their production of clothing as a result.

This in turn places a strain on everyday people who have been purchasing clothes online in greater numbers, with 56% of all consumers who shop online doing so primarily to purchase apparel.

The ideal solution for your company would be acquiring more buffer stock, but that’s not always possible, both because of cash shortages and a lack of supply. It might also be tempting to delay payments to your providers to improve cash flow, but you can’t afford to damage important relationships.

Instead, look for alternative ways to finance your supply chain. For instance, you could offer a discount for customers who pay you upfront for lots of orders. Although essentially a loan, it will most likely involve more favorable terms than borrowing from a financial institution — if they even approve you in the first place.

Photo: Pixabay.

Managing risks

In Asia and Europe, governments have introduced regulations that change how construction and fabrication sites operate, spelling issues for businesses across the globe.

Most supply chains heavily rely on China. In retrospect, that’s a clear recipe for disaster, as few companies were prepared for this situation. A simple solution is improved risk management. There are a million angles you could take, but one solution is diversification. This doesn’t just mean pivoting your reliance away from China, but also spreading operations across different regions, so a problem in one country won’t affect your entire supply chain.

You should also build better contingency plans and ensure you can access high-quality information. Throughout the COVID-19 outbreak, many firms relied on out-of-date and inaccurate intelligence from the government, and the results were disastrous.

Conclusion

We still face a lot of uncertainty, and no matter how effectively you and your business strategize for the future, the government could come up with an unexpected tomorrow that takes you back to square one.

However, in the long term, focus on making your business more adaptable and dynamic. Black swans are no longer once in a lifetime events — they’re increasingly common and expected. You can’t afford to be surprised again, so make the tough decisions ahead of time.

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