Coronavirus: Identify and strategise supply chain, workforce and other business continuity issues
Most businesses are likely to experience significant disruption to their business-as-usual operations and will face business performance issues throughout the duration of the COVID-19 crisis.
To help address these challenges, businesses will need to:
Evaluate short-term liquidity
- instil short-term cash flow monitoring discipline that allows them to predict cash flow pressures and intervene in a timely manner.
- maintain strict discipline on working capital, particularly around collecting receivables and managing inventory build-up.
- be creative and proactively intervene to lighten the working capital cycle.
- maintain regular contact with suppliers to identify any potential risks.
Assess financial and operational risks and respond quickly
- monitor direct cost escalations and their impact on overall product margins, intervening and renegotiating, where necessary.
- be proactive to renegotiate new terms and conditions.
- monitor the pressures that may be impacting some of their customers, suppliers, contractors or alliance partners (stress test any tier one and tier two suppliers that may be impacted).
- be aware of covenant breaches with banking facilities and other financial institutions relating to impairment risks in asset values.
Consider alternative supply chain options
- businesses that source parts or materials from suppliers in areas significantly impacted by COVID-19 will want to look for alternatives.
- consider the initial disruption as well as post-crisis scenarios given the potential for demand spikes. Organisations that operate with transparency and open communication have inherent advantages when events require quick actions to react and reshape.
Determine how the COVID-19 crisis affects budgets and business plans.
- businesses will want to stress-test financial plans for multiple scenarios to understand the potential impact on financial performance and assess how long the impact may continue. If the impact is material and former budget assumptions and business plans are no longer relevant, companies should revise them to remain agile.
Where the business is significantly impacted, consider minimum operating requirements, including key dependencies of workforce, vendors, location and technology.
There is also the issue of short-term capital demands for continuous business operations. Based on the outcome of the assessment, businesses may need to look at near-term capital raising, debt refinancing or additional credit support from banks or investors, or policy supports from the government. At the same time, companies will need to review overall operating costs and consider slowing down or curtailing all non-essential expenses.