Make Sure Your Business Lives to See the Post-COVID Resurgence

Five Ways to Protect Your Business Now

We are beginning to see the business casualties of COVID-19. The bankruptcy of established brands like J C Penney, Hertz, Gold's Gym, or the myriad of SMEs bankruptcies, shows that this coronavirus is not contained by borders or social status. What we are seeing in terms of the economic fallout due to this virus so far is perhaps the tip of the iceberg. And while many businesses are surviving due to the lifeline given to them by economic relief measures undertaken by different governments, their ability to live through this crisis when the aid pipelines run dry will crucially depend on critical operational decisions.

There are five imperatives that can protect your business from bankruptcy and give it the chance of a post-COVID resurgence.

1. Protect Cash & Liquidity

The critical challenge for businesses in the 2008 GFC was the lack of cash-in-hand, not insolvency. Demand for many businesses recovered quickly, but illiquidity meant they could not take advantage of the demand recovery. When faced with an external crisis, cash is equivalent to oxygen tanks when you’re climbing Mount Everest in bad weather.

To improve your cash position:

• Your margins are not as important as cash. Reduce finished goods inventory. If it means giving some discounts to buyers who pay cash upfront, so be it.
• Renegotiate accounts payable and receivable timings. You may need to give discounts to your buyers and pay a premium to your sellers to get the buyers to pay earlier and sellers to defer payments.
• Produce only goods and services that can be immediately sold. This may require pivoting. For example, a drone maker that produced drones to monitor pollution and gas pipelines pivoted to producing drones with speakers to enforce quarantine orders.
• Limit procurement to essential items needed for products that have demand.
• Look carefully at the cash position of the entire value chain—the weakest partner in the chain determines the viability of the whole system. 

2. Corralling Bottlenecks

Another challenge for businesses during a crisis is the ability to fill demand 24/7 to ensure a regular inflow of cash. Hyperactive focus on managing bottlenecks is critical for an organization’s survival during a crisis. 

In the early days in the fight against COVID-19, the disarray in the healthcare system in the US was not due to shortages of expensive resources like ICU rooms, but rather due to scarcity of some of the least expensive resources in the overall value chain - like test kits, face masks and gowns. The US had to scramble to overcome these bottlenecks, but the time lost resulted in regrettable and dire consequences for many.

Firms can effectively manage bottlenecks by:

• Ensuring that inexpensive resources do not become bottlenecks.
• Minimizing the unnecessary idle time of bottleneck resources.
• Prioritizing only goods and services that are in immediate demand.
• Taking care of all quality issues with activities performed before the bottleneck occurs in the value chain.
• Reducing set-ups at the bottleneck.

3. Reoptimize Product and Service Flows

Organizations need to reevaluate their entire business process flows and reconfigure them to overcome impediments created by the crisis. This will control the damage, and more importantly, drive the surge in the recovery. For example, Denmark's famous Michelin starred restaurant Noma modified its menu to offer only burgers to allow a more optimized operation for its restricted service offering during COVID-19 (outdoor dining and takeaway).

Research suggests a few important takeaways:

• Keep real-time track of inventory and demand.
• Determine new reorder points and quantities based on new estimates of lead-times and demand.
• Reallocate sourcing quantities between your supplier pool to overcome supply constraints.
• Revisit sourcing allocations before every reorder point. Note: having a diversified supplier base helps in the short term, but a highly diversified supplier pool can lead to challenges post-crisis and can make efficient operations more laborious in the long term.
• Either offer standardized products/service or delay the differentiation or customization. Think Lego blocks. Modularize your products/services. Many common components lower capital requirements in inventory, and allow for increased flexibility to satisfy customer demand.

 4. Seek New Partners

During a crisis, firms need to think differently about how they match supply and demand. They may need to add members outside of their existing network to their value chain in order to navigate the crisis. Partnering with new digital platforms can help firms gain access to on-demand “capabilities.”

For example, Chinese retailers tapped into Alibaba’s digital logistics infrastructure to sustain the unprecedented lockdown of more than 50 million citizens for an extended period during the COVID-19 crisis in Hubei. Governments of many countries sought the help of alcohol distilleries and cosmetics manufacturers to produce sanitization products, which were critically needed to fight the COVID-19 contagion. 

Some tips on seeking new partners:

• Look for partners who give you access to channels where consumers can purchase and consume your products.
• Offer other businesses access to new channels so that they can benefit now and in the future. This allows you to leverage your existing capabilities to create new lines of revenue.
• Partner with organizations that provide pay-per-use options for activities that face uncertain demand.
• Seek partners that can accelerate your business's digitization.
• Review current competitors and seek partnering opportunities.

5. Embrace External Assistance

Finally, firms must prioritize and cultivate sources of external assistance. Governments around the world have become increasingly sensitive to economic downturns and want to support businesses during a crisis. For example, the government of Singapore has provisioned a stimulus package summing to S$ 92.5 billion (as of May 29) to overcome the economic stress due to COVID-19.

Some tips for you in seeking external assistance:

• Increase your efforts to lobby regulators for temporary relief such as tax exemptions, rental relief, debt servicing relief, extension of credit lines, interest rate adjustments.
• Firms within the value chain should consider providing supply chain financing options to each other to ensure the financial lifeline for each player in the chain.
• Consider external assistance from industry associations (coordinate sector-wide lobbying), multilateral institutions (IMF and development banks), and academic institutions (for research expertise or capacity).
• Small businesses can use crowdfunding as a viable option, especially if you are connected with a social cause.
• Depending on the talent present in your organization regarding crisis management, seek external support from experts in crisis management and communication.

A crisis challenges the very existence of an organization and will render many incapable of survival, let alone recovery.

A crisis challenges the very existence of an organization and will render many incapable of survival, let alone recovery. There is no silver bullet. But cash and operations matter. Systematically approaching these with a well-thought-out plan gives you a fighting chance to survive and sets you up for a quick recovery and an eventual growth-surge post-crisis.