How supply chain, finance and procurement are navigating covid-19

30 April 2020 Consultancy.eu

While Covid-19 took the world by surprise, companies across Europe are moving quickly to tackle the challenges caused by the ‘black swan’ virus. A new report delves into what leaders in supply chain, finance and procurement are doing to keep their companies running. 

The study by Inverto, the procurement and supply chain management consultancy arm of strategy consulting giant Boston Consulting Group, found that around two thirds of companies have now taken business resilience, liquidity and supply measures to maintain their business activities. 

These mitigation strategies are much needed amid the corona-induced downturn, with seven out of ten survey participants (most of which are based in Germany, DACH and the UK) stating that they expect a revenue decrease of at least 10% compared to plan in 2020. One third are more pessimistic, anticipating a decrease of over 20% this year. 

What effect does your company expect from COVID-19 compared to plan in 2020

Sectors that are most impacted financially by Covid-19 are according to the survey retail, travel & leisure and automotive. Not surprising, as the lockdown in many European countries has forced restaurants and bars to shut down, banned any form of leisure and tourism with cities and their attractions closed, as well as airports, while remote working has slashed demand for cars and automotive-related services.

So what are leaders in opertions doing to navigate the downturn? Inverto’s study sheds light on some twenty commonly taken measures, grouping them across three categories: 

Business resilience

  • Procurement control tower in place (e.g. active management of open pos and delivery schedules)
  • Rationalise short/medium-term Capex spending unless it offers a clear longer-term competitive advantage
  • Reduction of Opex spend to build financial flexibility (e.g. marketing)
  • Recognition of distressed suppliers and identification / renegotiation of cost potentials through reduced cost structure 

Liquidity

  • Ensure rigorous cash management and reduce non-critical use of cash
  • Adjust working capital (e.g. inventory management) to ensure ongoing delivery
  • Conduct scenario-based planning and develop action plan accordingly
  • Redefine budgets and savings targets by category and geography

Supply chain stability

  • Mobilise central “war room” to evaluate and address supply vulnerabilities and monitor risk daily
  • Conduct Covid-19 supplier audit, assess critical vendors and provide action oriented feedback
  • Identify and implement alternative supply scenarios and risk mitigation strategies (e.g. new local sourcing)
  • Implement opportunities to partner with other companies to optimise resources
  • Provide financial/non-financial support to value chain partners

Participants having taken at least one specific measure per area

Across the board, 79% of all participants have already taken liquidity action with a concrete measure, 88% have taken measures to ensure business resilience, and 79% already enacted changes in their supply chain domain. A group of two thirds of the companies opt to not focus on one field of action, but have started activities in all three areas. 

However, there is still considerable amount of implementation to be completed, with many of the initiatives still in the early planning or roll-out phases. These include the reduction of medium-term investments, longer term cash management policies to maintain liquidity, and scenario’s for reducing supply chain risk and volatility. 

According to Thibault Lecat, a Managing Director at Inverto, measures should not just be geared at resizing and streamlining a company’s own operations, but also consider important or trusted suppliers in troubled waters. “There is huge value to getting closer to key suppliers now to help distressed suppliers,” he said. 

What are the key challenges and roadblocks

A permanent change

Looking beyond the crisis, 90% of the decision-makers surveyed believe that risk management and supply chains will look different post-Corona. “Companies need to address inherent cost structures and demand patterns,” stated Thibault Pucken, a Managing Director at Inverto.

Economic uncertainty, travel restrictions and conflicts of internal objectives regarding prioritisation are impeding the development of future-proofing the business. Insufficient real-time insight is another bottleneck that commonly surfaces – 88% of supply chain, finance and procurement directors complain about a lack of information in light of rapidly changing conditions.

Last year, BCG banked revenues of $8.5 billion globally on back of 14 percent growth. Subsidiary Inverto was founded in Germany in 2000 and joined BCG in 2016. The supply chain consultancy division has since seen strong growth, including expansion into the Nordics and the UK market.