What’s Next for Business & Supply Chains in the Wake of the Coronavirus
Let’s have a discussion about how the next few weeks and months could transpire, and have a look at how you could use this as leverage in the decision making in your organisation as we move further down a very uncertain path. While, admittedly, this remains pure speculation at this point, I think it doesn’t hurt to talk about some of the worst-case scenarios in the context of business so you’re prepared for the worst- and could only be pleasantly surprised if that doesn’t happen. I’ve also referenced what I believe to be a fairly legitimate source on the matter, considering that it seems clear at this point that global markets are going to slow down- we’re just yet to ascertain the extent of this slowdown.
Predictions from a McKinsey and Oxford Economics report show that in the wake of that slowdown, “the resulting demand shock cuts global GDPR growth for 2020 in half, to between 1 percent and 1.5 percent, and pulls the global economy into a slowdown, though not a recession.” The authors state that “our model developed in partnership with Oxford Economics suggests that global GDP growth for 2020 falls from previous consensus estimates of about 2.5 percent to about 2.6 percent. The biggest factors are a fall in China’s GDP from nearly 6 percent growth to about 4.7 percent.”
Authors at McKinsey write that “in this scenario, a global slowdown would affect small and mid-size companies more acutely. Less developed economies would suffer more than advanced economies. And not all sectors are equally affected in this scenario. Service sectors, including aviating, travel, and tourism, are likely to be the hardest hit… A wave of consolidation was already possible in some parts of the industry; COVID-19 would serve as an accelerant.”
In terms of consumer goods, the authors state that a drop in consumer demand would like result in delayed demand, meaning that “for the many consumer companies (and their suppliers) that operate on thin working-capital margins,” the next few weeks and months will be a tricky time to navigate. However, the report speculates that “demand returns in May-June as concern about the virus diminishes. For most other sectors, the impact is a function primarily of the drop in national and global GDP, rather than a direct impact of changed behaviours. Oil and gas, for instance, will be adversely affected as oil prices stay lower than expected,” it states.
Then, there’s supply-chain considerations, which we’ve already seen being pushed to its limits, even before an official pandemic was announced from the World Health Organisation. Picture those empty shelves where non-perishables and toilet paper once sat; that’s just one example, but one that includes large-scale supermarkets who are still catching up to demand. To absolutely no surprise, there’s a lot at stake for businesses whose supply chains originate in, or transit through China at some stage of the process. “Trucking capacity to ship goods from factories to ports is at about 60 to 80 percent of normal capacity,” McKinsey claims, adding that “goods are facing delays of between eight and ten days on their journey to ports.”
Further down the supply chain, the report forecasts that “as inventories are run down faster, parts shortages are likely to become the new reason why plants in China cannot operate at full capacity. Moreover, plants that depend on Chinese output (which is to say, most factories around the world) have not yet experienced the brunt of the initial Chinese shutdown and are likely to experience whiplash in the coming weeks”
This has extended to even the largest commerce giants like Amazon, who just hours ago said that the company was running out of stock, and deliveries were expected to be significantly delayed. Amazon said in a press release that “we are working around the clock with our selling partners to ensure availability on all of our products, and bring on additional capacity to deliver all of your orders… In the short term, this is having an impact on how we serve our customers.” A report from CNBC states that “the increased demand threatens to pose logistical challenges for Amazon. The company has been working to avoid disruptions in the supply chain, while some factories in China and elsewhere remain offline.
It seems as though in the coming weeks, one of the few certainties is uncertainty. Uncertainty of customer demand, of production constraints, transport logistics, and of course, the economy as a whole. In light of this, I’ve got three points on a more personal level that I’d like to convey so you can hopefully leverage in the uncertain weeks and months ahead.
• Tip 1 - Watch carefully what you spend time on. What information inputs do you require to survive and thrive? What information and hysteria do you need to avoid that will hold you back? If something goes wrong, like you lose your job, then spend zero time on what you could have done. Spend all your time on the next move. While working from home it will be very easy to get swept up in negative social media or be distracted. Set a timer to stay focused! Get your team hooked into a group chat app ASAP and hold each other to high productivity standards!
• Tip 2 - Professional development should be a priority for everyone right now. You are a product or service, and you sell yourself for a salary, wage or a fee. Make that product or service the best in the market! That goes for your organisation also - be the best on all fronts!
• Tip 3 - Remain positive, but don’t be delusional. It’s going to be tough out there. It’s far more valuable right now to be optimistic at scale. Life will go on. What benefits can you extract from the current situation? Focus on leveraging as much value as you can from the situation right now to get yourself ahead.
Thank you, as always, for your time. I'll see you in the next piece.