Corona Crisis: how to swim out of an economic maelstrom?
As we are moving into the sixth week of the industrial lockdown, we are entering a crucial week for businesses! After six weeks of an industrial lockdown, the economic whirlpool has become a maelstrom, with a vortex dragging companies deep into the ocean. The lifebuoys thrown to businesses by governments, through cash support and loans, do not help companies to get out of this vortex but instead pulling companies further down towards the bottom of the ocean. As there is no lifeline attached to the lifebuoys, there is a higher chance of survival by getting rid of the lifebuoy and other unnecessary baggage and swim out of this vortex as fast as you can. I cannot stress enough that time is hereby of the essence!
For business survival cashflow does not provide much rescue when your income has been axed, as solvency will kill you at the end. Therefore, you need to restructure your operations now in order to have a reasonable chance of survival.
Four essential steps for companies to take now:
1. Category restructuring: 20-80 rule. Laser-focus your production of the top 20% of your products or services that generate 80% of your business income. Remove activities and resources (including staff) that are not contribute to the ‘production’ of this top 20%, but only to the bottom 80% of products and services. This allows you to strategize how best to swim out of this vortex.
2. Value chain restructuring: laser-focus on those activities in your organisation that add value for your customer in offering the top 20% of products and services. Remove activities and resources (including staff) that do not add value. Second, outsource activities wherever you can and where you do not have a competitive advantage. The beauty of outsourcing is that fix costs become variable costs, which releases you from unnecessary baggage.
3. Getting most out of your processes: Understand where is your bottleneck is in your operations and where it supposed to be, and protect and control this bottleneck like a shark! Reduce excessive inventories by returning them back to your suppliers or selling them at a possible loss. Excessive inventories not only cost money (25% of the value per year), they are also slowing down your throughput. Speed is of the essence when swimming out of a vortex.
4. Horizontal Collaboration: Get the best supply chain team by working together with other supply chain networks, even competitors. Horizontal collaboration provides lower costs, lower supply risks, and better services in purchasing; lower supply chain inventory levels (by sharing inventories with other supply chain networks), and reduce costs and lead-times in distribution. Teaming with the best swimmers will give you the best chance to swim out of a vortex alive.
In summary, the time has come to make some difficult decisions in order to survive. Instead of staying with your lifebuoy or hoping for another lifebuoy with a lifeline, you have better chances by take action now! If you need further help in restructuring your organisation and supply chain operations, please do contact us.