By Daniel Abrego
With the coronavirus spreading across the world, we see impact in two ways. Not only of factories closing and communities staying home, but of demand in everything from oil to hotel rooms dropping. With such an economic slowdown, the effects of the coronavirus will get worse before getting better.
Do we have inventory?
Modern supply chains depend on just in time inventory, which means they receive inventory only as needed in the production process. This means there’s not a lot of spare inventory. Although we haven’t seen shortages in the marketplace yet, it is inevitable and we can expect a downturn towards the end of this month.
Who is most vulnerable?
Let’s assume a retailer uses their forecasting system to predict low demand. This low demand will be passed on to the wholesaler, who will pass it on to the manufacturer and so forth in a knock-on effect. In this model, the small suppliers are the most vulnerable and many will go out of business while others will operate on low capacity. In these cases, we can look to China which is already weeks ahead of the rest of the world in responding to this crisis. Their state banks have come to the aid of small businesses through loans and cutting taxes.
What about recovery?
Demand will pick up and we should be prepared for this scenario too. It will be a u-shaped recovery as supply will meet demand only in a gradual way. Companies will not be able to fulfil orders immediately. They may place huge orders with suppliers but expect only a percentage to be filled for some time.
What should you do?
Sit down and make decisions so that you have contingency plans in place. Now it is too late to find alternate suppliers because it takes time to get quality assurances and build trust and reliability for your customers. Instead, think about what you can build with the parts you have and keep in mind that demand in certain specific areas (such as in online education, healthcare, and home delivery) has increased and this translates to opportunity.
Change your mental model
What will happen if your workers are quarantined or your CEO is unreachable due to travel restrictions? Have someone reliable who will make good decisions for your company.
Who are your priority customers and who will you lose? Is there an innovative way to meet their needs to retain loyalty by designing and offering different products or services?
How will you pay your workers and maintain cash flow? Can you keep up morale through social media campaigns and other online channels? Can your employees update their knowledge and upgrade internal systems during this downtime so that they are better skilled for when demand recovers?
What about shifting from brick-and-mortar to an e-commerce approach? Are you aware of shifting consumption habits and how to capitalize on this, perhaps by making a partnership with a b2b platform? Even if these are not your long-term goals, could there be some good habits from these approaches that will benefit your business?
Reacting to crisis and making contingency plans requires a fast re-framing of the mind. And recovery planning needs to be done while you are still reacting to crisis (you might be in a defensive mood, but do not let this rob you of becoming innovative). Companies can protect their businesses and workers from the lessons coming out of China and South Korea, and it may make your company more adaptive in the long run to a constantly changing world.
* Daniel Abrego is CEO of Intercontinental Logistics Corp. He is an international logistics expert and business innovator.