Planning For A 2nd Contagion

Written By Marc Potter



12 March 2020

Covid-19 is Transformation Unusual.  Planning for near-term disruption plus a 2nd contagion to supply chains is imperative.

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The NYSE dropped its fastest ever into “correction” territory by 20 February 2020.

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As demand wanes and commodities become trapped inside non-functioning supply chains prices dropped faster than the stock market, representing opportunity for some.


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Next came the Saudi - Russian oil price war, and unexpected consequences of further stock market declines due to leveraged positions in US oil companies.

As the crisis unravels, business implications are unclear, but as markets start to dry up supply chain impacts are being accutely felt:

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Many companies have instituted SOP for extreme financial distress, led by airlines which have experienced the most immediate and for now most extreme impacts due to government-imposed travel restrictions.

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Are governements able to marshall containment?  Are the biological effects sufficiently known that a pandemic can be risk-weighted as marginal on the global economy?  Or are there deeper problems to come? 
 
While too early to make these calls, other forces may be at play that require specific attention over and above the coping strategies above.  Quietly the world’s leading businesses have been developing internationally-integrated supply chains by leveraging new technologies and organisation constructs in pursuit of improved response times, lower working capital, and higher reliability.  US, Japan, Germany, France, UK ... all more reliant on Chinese factories as supplier ... 

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The US, Japan and Australia are particularly exposed to China’s recovery for supply, Germany and Australia as a customer.
 
And with this growing reliance on international supply, little has been done to create supply assurance via increasing in-country inventories.

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These transformative moves, led by the largest and best resourced businesses may lead to yet another contagion, not unlike that caused by computer-driven trading during the 2008 market melt-down.  By locking up scarce supply for critical production supplies and marketable goods via AI-assisted expert teams, large enterprises will strive to ride out the current instabilities, with the potential to starve smaller enterprises.  

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Will a distressed public bereft of simple consumer goods pressure politicians for improved transparency and supply chain resilience?

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The compound effect of crisis strategies may further constrain supply in the near term, as has happened in previous contractions, further benefiting those with supply chain transparency and coordinated coping strategies. 

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As Peter Drucker stated ... “Never waste a crisis.”  Not only should businesses be implementing their crises plans with due haste, they should be using this crisis to accelerate their transformation understanding:

  • Further thinking on cost variabilization;

  • Further work on CX and how channel models can accommodat customer needs and company profits;

  • Intensive examination of supply chain structures, key weaknesses and opportunities for future resilience based on what might be painful near-term experience;

  • Where possible take advantage of low commodity prices to bolster productive supplies that can easily be turned into cash where supply chains and demand permit;

  • Embracing key employees and partners in each of the above investigations to provide meaning and purpose for them in these difficult times, notwithstanding the potential cost-cutting to come;

  • Seek out niche markets where demand is less elastic, supply chains less altered, and aligned to your fastest cash cycle.

 
In this crisis you can't just wash your hands.

Marc Potter
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