As the threat of COVID-19 (i.e., coronavirus) expands, clients are scrambling to respond to questions about how to protect their employees, ensure the continuity of supply chains, control the financial impact, and manage reputational risks. As a result, clients have asked for help with Reactive Business Continuity Plans across multiple dimensions, including, but not limited to:
- Ensuring workplace safety.
- Maintaining productivity, security and resiliency.
- Ensuring continuity for 24/7 operations (including trading and other market activities).
- Performing rapid analysis on macroeconomic impacts on business lines.
- Developing and implementing mitigation plans for supply-chain disruptions.
- Modeling potential long-term stress scenarios and developing mitigating action plans.
- Managing and mitigating impacts on capital markets.
On top of rapid changes in consumer demand, the Harvard Business Review reports that many companies “are facing a supply crisis that stems from weaknesses in their sourcing strategies that could have been corrected years ago.” A recent report found that 94% of the Fortune 1000 are seeing COVID-19 supply-chain disruptions.
It’s easy to understand why. The world’s largest 1,000 companies, or their suppliers, own more than 12,000 facilities in COVID-19 quarantine areas. The quarantines have resulted in reduced economic activity, as products and materials cannot be sent or received, and services cannot be provided.
Source: Harvard Business Review
What steps can companies take to protect their bottom lines and stymie losses?
First, perform a Rapid Business Continuity Assessment to identify the areas of your business exposed to risks associated with the virus, forecast impacts, and develop mitigation plans. This applies to companies across industries, from airlines to pharmaceuticals, technology companies, and banks, not just manufacturers and retailers. The research firm Dun & Bradstreet predicts that COVID-19 could impact 5 million companies worldwide.
Companies are seeing the following impacts across their supply chains:
- Materials: Supply shortages of materials or finished goods coming from or routed through logistical hubs in impacted areas.
- Capital Markets: A lack of robust treasury-management strategies resulting in wild swings in the cost of raw materials, foreign-exchange values, the value of investment portfolios, and access to credit.
- Labor: White- and blue-collar labor are not available due to quarantine or illness, resulting in lost productivity without correlating changes in labor costs.
- Contracts: Suppliers in various legal jurisdictions claim a force majeure defense for unfulfilled contracts.
- Business Development: Travel is restricted to critical areas, limiting the ability to discover, qualify, and convert new business.
- Logistics: Established hubs and supply networks are experiencing capacity limitations; even if materials are available, they cannot be delivered into the supply chain.
- Consumers: Consumer demand is decreasing due to fears about being in public and possible exposure to the virus (potentially increasing demand to strained supply chains for online retailers and bringing firms reliant on in-person service to a halt).
Second, develop immediate and longer-term response plans while developing a larger Enterprise Risk Management program. Business Continuity Plans (BCPs) are critical to enterprise resiliency and scalability, but many growth clients are reaching out for assistance with Reactive BCPs. BCPs are meant to ensure critical assets are protected and available to keep a business running in the event of a disaster.
BCP plans range in scope and focus, but the following steps can be taken to mitigate the impacts of COVID-19 on your company’s supply chain:
- Start with your people:
- Identify key and back-up personnel for key functions.
- Test key personnel productivity should face-to-face meetings be inhibited.
- Develop an employee communications plan.
- Conduct staff training to ensure employees understand how to respond to worst-case scenarios.
- Assess impacts to supply and demand from changes in:
- Consumer confidence (in B2C or B2B environments).
- Your ability to engage with customers.
- Market demand for specific services.
- Ability of suppliers to deliver raw materials and finished products.
- Contract terms defining who must bear the risk of loss.
- Limitations on critical transportation routes.
- Work with your leadership team and external partners to develop mitigation plans for:
- Movement to a fully remote-worker model.
- Contract renegotiations, including new terms and change to force majeure
- Changes in cash flow, liquidity, and access to capital markets.
- Increased risk of cyber threats due to presumptions of vulnerability.
- Adjustments to the macroeconomic landscape.
- Act rapidly and in an iterative manner, including:
- Communicate clearly with employees, partners, and customers.
- Activate alternative sourcing strategies.
- Maintain flexibility, adjust market activities, and limit commitments.
- Hedge risks where hedging strategies are available.
- Continually evaluate the market and maintain the ability to pivot strategies in real time.
Enterprise Risk Management and Business Continuity Planning are essential to managing risks and opportunities affecting value creation and preservation.
Don’t Go It Alone
Our team of experts can help your company quickly and effectively develop and implement a Business Continuity Plans (BCP) while you focus on navigating your business through a volatile market. Contact MorganFranklin today to learn more about what we are doing today to help companies be prepared for tomorrow.