As panic is setting in and businesses are dealing with an uncertain future, US management consulting firm, McKinsey and Company, has released a report on the impact of the coronavirus on business and what businesses can do to minimise the (financial) impact.
Here are some of the guidelines.
Protect your employees. The COVID-19 crisis has been emotionally challenging for many people, changing day-to-day life in unprecedented ways. For companies, business as usual is not an option.
They can start by drawing up and executing a plan to support employees that is consistent with the most conservative guidelines that might apply and has trigger points for policy changes. Some companies are actively benchmarking their efforts against others to determine the right policies and levels of support for their people.
Ensure that liquidity is sufficient to weather the storm. Businesses need to define scenarios tailored to the company’s context. For the critical variables that will affect revenue and cost, they can define input numbers through analytics and expert input. Companies should model their financials (cash flow, P&L, balance sheet) in each scenario and identify triggers that might significantly impair liquidity. For each such trigger, companies should define moves to stabilise the organisation in each scenario (optimising accounts payable and receivable; cost reduction; divestments and M&A).
Stabilise the supply chain. Companies need to define the extent and likely duration of their supply-chain exposure to areas that are experiencing community transmission, including tier-1, -2, and -3 suppliers, and inventory levels. Most companies are primarily focused on immediate stabilisation, given that most Chinese plants are currently in restart mode. They also need to consider rationing critical parts, pre-booking rail/air-freight capacity, using after-sales stock as a bridge until production restarts, gaining higher priority from their suppliers, and, of course, supporting supplier restarts.
Companies should start planning how to manage supply for products that may, as supply comes back on line, see unusual spikes in demand due to hoarding. In some cases, medium or longer-term stabilisation may be warranted, which calls for updates to demand planning, further network optimisation, and searching for and accelerating qualification of new suppliers. Some of this may be advisable anyway, absent the current crisis, to ensure resilience in their supply chain—an ongoing challenge that the COVID-19 situation has clearly highlighted.
Stay close to your customers. Companies that navigate disruptions better often succeed because they invest in their core customer segments and anticipate their behaviours. In China, for example, while consumer demand is down, it has not disappeared—people have dramatically shifted toward online shopping for all types of goods, including food and produce delivery.
Companies should invest in online as part of their push for omnichannel distribution; this includes ensuring the quality of goods sold online. Customers’ changing preferences are not likely to go back to pre-outbreak norms.
Demonstrate purpose. Businesses are only as strong as the communities of which they are a part. Companies need to figure out how to support response efforts—such as by providing money, equipment, or expertise. For example, a few companies have shifted production to create medical masks and clothing.