COVID-19 has been declared a pandemic by the World Health Organization and presents a significant challenge to people and organizations across the world. As the virus continues to spread, there has been a huge negative bearing on the operating income of all enterprises – be it big or small, a start-up or an established business, be it any sector, none have been spared. Profits have been wiped out and huge cash flow and liquidity challenges have engulfed and choked businesses.
The uncertainty and ambiguity loom large. The disruption to business is likely to continue for many months to come. In these uncertain times, it is critical that businesses prepare for, respond to, and ultimately emerge stronger from this “crisis” and a robust and sustainable business continuity plan is put in place.
Within an enterprise, every function is dealing with their own set of challenges. Each function has been hit hard – strategy, operations, supply chains, workforce, finance, sales and marketing. Systems and processes have been jolted out of sync and all put together, this has imposed a considerable burden on the cash flow and income. With conversion rates dropping and sales meetings not happening, customer-acquisition costs might continue to soar through the roof as days and weeks go by.
The COVID crisis a wake-up call for the Finance function. Cash flows have been disrupted and it is challenging to meet short and long-term needs. Accounting transactions have been delayed and there is a lack of a contingency plan to manage the stakeholders – both internal and external. Businesses may not be fully equipped to produce financial statements, as may be required by law. Currently, enterprises are struggling to understand operating model changes and tax implications. There is an immediate need for ramping up financial forecasting and scenario modelling. It is important to review 2020 tax planning and determine whether there is an impact on tax accruals/estimates across the board, or if issues are isolated to specific locations. For multinationals, It is imperative to evaluate transfer pricing activity related to moving cash into or out of affected countries to pay for epidemic-related expenses.
There is an immediate need to do the following :
– Determine your cash sources and needs for the next 90 days
– Develop a communication plan for management, the board, and the audit committee.
– Identify a team to address the impact on each area of accounting operations and financial reporting
– Identify and leverage technology where manual processes are being practised within the tax reporting and compliance processes
Additionally, the Human Resource function as well has been hit very hard. There are continuous challenges of reduced productivity, staff absenteeism and accountability measures. There are some pertinent questions to ponder. Does the business have in place policies and procedures for working remotely? How do sick time, employee leave policies, and travel policies need to be adjusted during this uncertain time? What data privacy and security controls are in place with employees accessing personally identifiable information at home?
As for the Supply Chain function, procurement teams are struggling to cope with the regular supply of raw materials and components and unable to protect supply lines. There is a lack of vital information across global teams and their response to the disruption has been reactive and haphazard. They lack the knowledge which suppliers, sites, parts, and products are at risk and put them in a critical situation of constrained inventories and inability to utilize capacity at alternate sites. Most of the procurement activities are centred around cost savings, which means obtaining supplies at the lowest cost possible, provided they fall within specified quality parameters. This leads to less standardisation and mapping of supply networks.
It is imperative to identify and evaluate the potential risks and specific operational threats; to determine key sources critically impacted; leverage inventory processes from past crises and adapt to the current situation. It is essential to invest in mapping supply networks to have better visibility into the structure of their supply chains. Although supply network mapping can be resource intensive and difficult, companies will discover the value of the map is greater than the cost and time to develop it as it would serve as an appropriate risk-mitigation strategy. A new breed of services companies can help acquire and analyze supply network data and organize the results in a user-friendly way. A few of the companies operating in this space include Elementum, Llamasoft, and Resilinc. Supply chain disruption is often not part of supplier performance metrics. When a disaster strikes, everyone suffers: buyers and suppliers alike. Therefore, it only makes sense that firms should incorporate disruption-related metrics in their evaluations of suppliers.
Businesses need to immediately establish processes and protocols to capture current state of employees’ locations and work-related travel and make the necessary provisions for work from home. They need to develop business contingency plans for the employees, beginning with emergency health protocols, such as sanitization, quarantine and evacuation, as well as healthcare access. They also need to define which functions must remain onsite and the protocols for remote working; and determine technology infrastructure and controls needed to support remote working at scale. With changes in the external environment, such as customer, pricing and supply chain, redefining roles and responsibilities as well as headcount planning is imperative. Learning and development, as always, during a crisis comes to a stand-still. Businesses are looking at leveraging technology to provide new learning platforms where employees could utilize their time at home to develop new skills.
The business, as a whole, needs to assess and evaluate threats to each major line of business and relook at the vision 2020 and beyond. There is a call to action and need to update the business strategy based on ongoing learnings from this crisis (e.g., expected demand/demand volatility, and changing customer expectations, employee requirements and supply chain strategies.) and assess which product/service innovations would be of benefit to deploy. It is important to evaluate the impact on branding and marketing intangibles and determine if there is a need to change the operating model and risk appetite framework. People from procurement, logistics, and supply-chain financing need to come together to talk about what key gaps (tools, information, people, processes, etc.) need to be fixed to protect the company from disruptive events in the future and how to align the goals of procurement with the overall business objectives. A generic business continuity plan needs to be adapted and tailored to cope with the unique challenges posed by the coronavirus.
First things first, there is a need to
– Assemble a crisis management response team which should include reps from HR, communications, security, compliance, and legal. It’s also a good idea to have in place an extended team that includes representatives from IT, finance, operations, supply chain, as well as regional representatives.
– Establish communications with all employees, suppliers, and other vital connections to your business.
– Implement work from home procedures. Utilize software such as Sharepoint to enable staff to remotely access necessary administration.
– Revisit 2020 and Q1 budgets and be aware of the potential financial impact of severely impacted operations and income during this period.