For months I’ve been on the phone almost every day with business executives around the world in virtually every industry. It seems there are 3 business groups affected differently by the pandemic:
- Those who have seen an increase in demand because their goods and services has increased due to the pandemic. For example, anyone involved in Personal Protective Equipment (PPE) to prevent COVID infections for consumers and businesses are having a field day.
- There are those who are swimming along, mostly at the status quo in overall demand for products and services. Many of these have been deemed “essential,” or it was not practical to shut down and continue to support the necessary supply chains. For these demands, for some areas are up, and others are down. For example, a package delivery firm saw their B2B volume drop by 30% while at the same time, direct-to-consumer deliveries were up 50% or more. It sounds like a gold mine, but not really. Deliveries overall are up, but they are much smaller packages (and fees) on average than before, so profitability per delivery has dropped dramatically.
- Organizations to whom this article is dedicated, who’ve been crushed by steep declines in demand or being forced to shut down. Anyone upstream or involved with restaurants, “non-essential” retail stores, personal services, airlines, travel & entertainment, hotels, events of all kinds, and more, are included in this category. One of our MetaExperts, Joe Lynch, suggested there are Five Keys to recovering from this ‘crush’, for lack of a better term. I will share each, why they are issues and things to consider when you in the last category come out the back end of the pandemic in the months ahead.
The Five Keys Joe shared with me revolved around the following:
1. Cash Is King
Cash is a big problem when it’s time to resume operations. One executive suggested that we’re going to see a massive re-shoring of seasonal goods to the USA in the future. Why? Well, take the clothing and fashion industry with storefronts as an example.
In December, they had to commit to the inventories of spring and summer goods made offshore to be sold in their stores starting in February and rolling through April. When non-essential retailers were ordered to close their doors, all those goods are now in limbo – probably until next year. Why? When retailers reopened sometime in May and into June, what needs to be on the shelves? Fall and Winter goods! If all their cash is now tied up in inventories that won’t move until next year, that is a real problem.
The other reality the executive stated is that much of the storefront buildings we see today may not reopen at all – causing another retail apocalypse of empty strip malls and big-box stores. Hmmm. Now we have tens of millions of empty square feet of buildings located everywhere and a displaced retail workforce with no jobs. Now what?
Answer – light manufacturing is likely to explode, producing seasonal goods, on-demand, in the geographic area in which they are consumed. In effect, this is reshoring of supply for these kinds of goods. People to do the work at reasonable wages are available. Brick-and-mortar infrastructure is available. Now, all we need is a plan and some brave pioneers.
There are many reasons why this is more practical today, that were not in play 10 years ago. There are 2 key dynamics to you need to know.
- First is Industry 4.0.
- The other is Activity Based Costing and understanding the true cost of offshoring in the first place. Those are topics I’m not covering here, but trust me – changes are a’coming.
The cash for this new model is not that hard to come by for the brave and innovative few willing to take the lead. Happily, there are many support options available today, including crowdfunding and public/private partnerships clustered around incubators across the USA and beyond. The cash problem is solvable with a longer-term view.
2. Talent is the Bugbear Few Executives are Considering
There’s been no alternative for the crushed, but to fire or furlough employees in hopes the pandemic will ease in time to save those jobs, let alone get back the people who originally held those jobs that you lost. Many people who were on the bench with any Moxy at all are now with firms seeing a “‘lift” from the pandemic.
The chances they will risk coming back to your crush-prone company? Not so good. Here’s another problem – the model for doing business will considerably change. That means the skills and experience of the old workforce are not necessarily ready for the new reality, in the future world where technology and automation increase dramatically (think about even more robotics and automation), today’s workforce may no longer be relevant.
So, your best people who most likely could adapt, jumped industries, and the rest really don’t want to work for your business anyway. Now what? There will be a massive increase in utilizing interim and contracted talent. There will be a massive re-tooling of talent, which lends itself to engaging interim expert talent to support that effort.
For example, how long will it take for the airline industry to get back to the volumes of travel we saw in Q4 2019? Hmmm. Orders for aircraft have been canceled globally by all commercial carriers. Incredibly qualified people who worked in the airline industry, making stuff for planes are now on the bench. The bring some awesome skills to companies now needing people with a technical bent. Sure, we need to re-tool, and we may not start them at the same level – but they are out there. I know a bunch of them personally who joined our MetaExperts network this year.
3. Your Supply Chain Has Blown Up – And Will Never Be the Same
For instance, when the US auto industry eventually fires up again, there’s going to be some major scrambling.
Scrambling? How so? Tier 1, 2, and 3 level suppliers operate on razor-thin margins. Sales going to zero with no warning for two or more months will deep-six hundreds, if not thousands of suppliers, predominantly the smaller ones.
The industry will ramp up rather slowly and will not return to the volumes seen in Q4 2019 in the foreseeable future, but they will find a way. There will be a ton of tooling changes and supplier consolidation, resulting in a new look to the supply community late in 2020 and after that.
Even worse, the problem cascades into other industries’ supply chains, as I have heard repeatedly from many executives. Consider this: Your small business supplies three manufacturing sectors, allocated equally in thirds:
- Capital Equipment
With two out of three of your customers canceling orders for months – what do you do? Sadly, for many, they close their doors permanently. Capital equipment manufacturers have been faced with this problem. Vendors have been closing down since early in February 2020, and it’s growing worse daily as the economy does not restart, let alone how long it takes for it to resume anything resembling “normal”; months, years…or never.
Consider this: You have sourced many key components or services (such as back-office and contact centers) in other countries. Consider Italy and Mexico. Unless deemed “essential” by their respective governments, your suppliers have been forced to shut down. You have the immediate problem of finding parts or support from other sources. And, who’s to say when those new suppliers will startup, if ever.
The mushroom cloud over the supply chain.
The proof? I’ve been on the phone with supply chain pros in all industries –those getting lift, those maintaining the status quo…and the crushed. All of them tell me the same thing:
There are not enough hours in the day to deal with acquiring what’s needed to operate at some level, and on the other side of the coin, dealing with irate customers who want the stuff you suddenly can’t supply – essential or not.
Solving this problem is complex, to be sure. First, there is no short-term choice but to work long hours and participate in all the fire drills. After that, I predict that you will take a very hard look at sourcing in your “own back yard.” A few brave zealots have been beating this drum for years that offshoring, and a focus on price is the road to an “uncomfortably hot” place for some time. They are right.
Activity-based costing and understanding true “landed cost” and “cost to consume” for goods and services will get a very hard look by P&L owners going forward. Sourcing locally has many benefits that are difficult to quantify. The first is the responsiveness. Transit times from China vs. 100 miles down the road suggest which supplier is most responsive to changes.
Another consideration is the localization of disruptions. If your geography experiences an event such as a pandemic, shutting you down, at least you and your suppliers are all in the same boat; the timing and period of disruption is a shared burden. Surely, we are smart enough to work with local suppliers on processes and methods that allow them to make a decent margin – without changing the total, “real,” cost.
4. Demand Management Challenges
This means anticipating upside and downside change, flexibility, and adaptability of all links in the end-to-end supply chain, developing coping strategies and contingencies. Executives who own the long-term performance of their organizations are faced with a tough task: How to avoid getting into this mess next time.
What’s happening to organizations creates one of two problems: Demand for an item or service is through the roof, or in the basement. I see three basic strategies to tackle this problem:
- Access to and use of technologies that allow you to model scenarios of demand to support your decision making. I have many suggestions for this, depending on your industry and situation.
- Design supply and service-provider networks to be adaptive and resilient in the face of disruption. Sounds easy, but there is a ton of heavy lifting to consider critical elements such as onshoring vs. offshoring, multi-sourcing vs. single-sourcing, and other issues.
- Educating your team to understand the issues and prepare them to handle them when they happen. At the end of the day, your team must understand and execute the demand management strategy you design. Assessing their capabilities and willingness to support you across the end-to-end supply chain, including your lower-level tier suppliers, must be considered. One of our partners, Next Level Purchasing, offers a great procurement course you might find helpful.
5. Inbound and Outbound Logistics – Not So Simple Anymore
During the pandemic, I’ve seen a total disruption of the inbound and outbound logistics landscape. Consider this: Logistics related service firms for the “lift” organizations due to the pandemic are 110% utilized.
Carriers for the status quo industries are riding it out. For the “crushed” category, all bets are off. Those who hitched their wagons to the “crushed” category were put out of business almost overnight. They are scrambling now to support the “lift” industries. If their equipment or geographical reach is wanting… we may not see them again.
Executives in this industry are chasing, “what else can we move now”? Those too tightly integrated to the “crushed” industries may not exist as we know them today after the pandemic eases. In the meantime, they are vigorously attempting to jump onto the “Lifted” industries that need additional transport services.
Logistics is a simple-and-yet-complex industry that provides a one-dimensional family of services to move physical goods from point A to point B. Over the years, the industry has been forced to specialize around other certain industries.
For example, the demands of automotive supply chain logistics are a world apart from the cold chain logistics industry moving food from producers to retailers to the consumer. The chances that a logistics provider for an automotive manufacturer can support the cold chain any time soon is zero. Due to the auto industry’s rigorous special requirements, cold chain logistics firms cannot enter the automotive space either.
This cruel reality means that, depending on your company’s industry, you have a big problem: your logistics providers don’t need your business, or they are now or will soon be defunct.
In all this, there are real opportunities for the brave. If you’re thinking about taking on the brave side of opportunities, let’s talk.