When your house is on fire, you’re not thinking about what brand of energy efficient appliances to buy, the most cost-effective HVAC system or what color to paint the study. The same goes for your business when disruptions throw the supply chain and your profits for a loop. Protecting your four walls and incurring as little damage as possible is priority number one, and even though there may be solutions out there that could quickly put the fire out, the strategic thinking and upfront capital investment to adopt them amidst the flames is out of the question. With little to no revenue coming in, costs must be cut to limit the drain on cash so when a crisis does end, the business can ramp back up quickly (or avoid closing altogether).
Growth companies and those without deep pockets must focus on the best ways to minimize risk, maintain business continuity and sustain cash flow — all the while keeping the flames of crisis at bay and planning how they’ll recover from disruption in the short, middle and long term. This requires tough decision-making and the foresight to invest in solutions that are easy to pay for. Plans have to be implemented quickly to benefit the business today and create the profitability needed to justify the investments made in those solutions tomorrow.
Not to mention what’s going on outside your four walls …
If there’s one thing we’ve learned, it’s that demand spikes, slides and shortages are inevitable during a crisis. Demand and revenue may be driven via multiple sales channels, and cannibalization is likely at retail locations that experience out-of-stocks or the unpredictable redistribution of inventory as consumers purchase in new ways. This means the reliance upon sales history and static spreadsheets with extreme data latency goes completely out the window … and those effects could last weeks, months or even years.
Additionally, companies must address business continuity plans to determine which suppliers, manufacturers and logistics providers can and will remain open during a crisis, if adequate labor will be available to support those supply chain partners and at what capacity they’ll be able to operate.
It’s time to get creative
When presented with a solution that could potentially save your company in the middle of a crisis, business leaders typically ask themselves questions like, “Can we afford this?”, “What will the impact be on cash flow?” and “Will this work in time to keep me from shutting down?” Quick wins are top of mind, as is aligning an investment made now with value derived some time in the future.
Importantly, a supply chain software solution should be from a partner well versed in your industry and ready-to-deploy with out-of-the-box capabilities to drive fast results. Knowing sooner and acting faster is key.
A value engineering assessment from a trusted technology partner can assist the business with insights on ramping up revenues in new ways, understanding cost reduction and efficiency opportunities, along with risk mitigation so that "next time" the business is better prepared.
In addition to these options, businesses leaders should consider their operations’ assets and agilities to creatively use what they already have. Which products are suddenly in demand that you can produce with your existing equipment, inventory and suppliers? Just look to the fashion and textile companies that leveraged their assets to make masks and hospital gowns during the COVID-19 pandemic and discovered new revenue channels along the way. Finding ways to keep the lights on and avoid taking on additional debt may actually empower your company to contribute to a humanitarian crisis and balance global supply and demand for those in need.
Save cash and cash will save you
Companies without significant cash reserves in a crisis are put in a position to consider alternatives like extending payment terms, drawing down inventories, exercising lines of credit, reducing headcount and finding ways to cost-effectively collaborate remotely—all with the goal of improving cash flow and (hopefully) reducing their chances of going out of business.
But those companies whose commercial, operational and financial pillars are aligned (and therefore tend to have better cash positions than peers), have a much better chance of not only surviving, but thriving through times of uncertainty. When it comes to supply chain disruption, cash flow is the name of the game, and those who have it in hand will ultimately prevail.
Learn more about how you can prepare for disruption with S&OP solutions from Kinaxis®.