Coronavirus (COVID-19) and Your Supply Chain

   

These are truly unprecedented times.  Strikes at ports and fuel prices sometimes disrupt supply chains; however, supply chains have not experienced such impact and fast disruption to off-shore manufacturing and shipping patterns as they are with COVID-19 since WWII. 

We are being told that “social distancing” is the only way to flatten the rapidly spiking, exponentially increasing, rate of infection.   In order to institute “social distancing,” massive closures are necessary.  The recommended social distancing moved from 100 in a group to 50 to 10 in a few days.

“Social distancing” and “self-quarantine” are new to our lexicon and habits.  My wife and I are concerned about our 11-year-old daughter who is especially at risk because she is Type 1 diabetic. A concern shared by millions of Americans and residents of other countries.

As the number of confirmed cases increases, "self-quarantines" are potentially replaced with mandated lockdowns. The San Francisco Chronicle reports,

“Six California Bay area counties announced a “shelter in place” order for all residents on March 16th – the strictest measure of its kind yet in the country – directing everyone to stay in their homes and away from others as much as possible for the next three weeks as public health officials desperately try to curb the rapid spread of the coronavirus in the region.” 

As of this writing, at least 13 states, plus the District of Columbia, have closed all school systems for two weeks and admit it may be longer.

To assist consulting clients, we have been dialoguing about how they plan to deal with this from an ecommerce and multichannel supply chain perspective.  This blog has several companies’ observations.    

 

How long will impacts from COVID-19  last? 

Dr. Anthony Fauci, one of the lead scientists behind the Trump administration’s coronavirus response, is predicting disruptions to everyday life in the U.S. could last up to eight weeks. 

Several cities and states have already banned large gatherings, businesses are requiring their workers stay at home, and Americans are generally being encouraged to limit their movements in an effort to slow the spread of the coronavirus. It is uncertain how long the ripple effects of COVID-19 will linger once cases begin to decline.

Availability of workers

When schools are shut, a high percent of employees may not be able to come in to work.   One client in Los Angeles had this experience. 

“When schools closed, 50% of our employees said they could not come to work, because they rely on schools to provide childcare while they work.  If our fulfillment drops by 50%, it will become challenging, economically, for the company.” 

The challenge is how much can you do to help employees with your financial resources? 

Schools feed low income children

Federal and state programs feed children from poor and low-income families.  Often, they receive their weekday breakfast and lunch and, in some cases, dinner. How can we keep this going? How can companies help in the community? Many multichannel companies are contributing with paid leave and donating to help within the community.

Employee communication is essential

People are inundated with statistics and conflicting preventive measures. To get through this, we need to open up the communication with each employee.  As we said above, lower income employees and their families are most vulnerable.  What will be their individual situation? 

Also, different generations of employees will see this differently.  Millennials (born 1981-1996) may see 9/11 and this pandemic bookending their lives.  Older workers, servicing in the military, have different life experiences. Each may see this differently.

 

Revising your gross order demand and net sales

One executive last week said, considering the effects on order demand early in this infectious cycle, his best case projection:

“I would expect this to decrease demand by at least 3-5%.  Worst case, based on current information, is that demand will be 10-15% below plan.” 

However, this week social distancing may effect these projections. Some businesses are also seeing a rush of certain products while shoppers stock up and prepare for a potential quarantine. On March 17, Amazon announced that it will stop accepting all products other than medical supplies and household staples to its warehouses amid coronavirus crisis. An email distributed to senders states:

"We are seeing increased online shopping, and as a result some products such as household staples and medical supplies are out of stock," 

"With this in mind, we are temporarily prioritizing household staples, medical supplies, and other high-demand products coming into our fulfillment centers so that we can more quickly receive, restock, and deliver these products to customers."

To better prepare, ask yourself these questions:

  • What do you expect your demand and sales to be?  Reproject your order demand
  • What’s your estimate of the available inventory (on-hand and in-transit)? 
  • How long will this projected inventory last? 
  • What is your net sales projection? 
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Bank line of credit

One client had their bank call and ask them not to make draws on the credit line because a rush of customers doing so had put them in a temporary bind. How leveraged is your business?  What financial resources do you have to weather this?

 

Observations of an importing company

We reached out to Andy Heller, President – Hybrid International Forwarding, to find out what his company is doing to prepare.

Mr. Heller says,

“There are two considerations an importer needs to be asking themselves at this time: 

1. What happens if/when goods arrive into the USA in the coming weeks, that due to a lockdown, cannot be picked up and/or unloaded? In short, this means the goods are not in your warehouse to fill customers.
2. What happens if the origin country goes into lockdown, putting a pause on the ability of your supplier(s) in that specific country to load goods?”

Potential impact of a lockdown

Dr. Anthony Fauci, a lead scientist for the Trump administration, said he may eventually recommend a 14 day total US lockdown because people are not heeding “social distancing”.  Many businesses and governments are letting office and management employees to work at home.  Regional and large metropolitan areas may enact lockdowns. 

Mr. Heller goes on to say,

“Based on the rate of infection in China, Italy and other countries, if your company is importing from a country that is seeing a rapid rise in infections, planning for that country to lock down for at least 2-4 weeks in the near future would be a prudent consideration.  Given that, an importer and retailer need to ask if they have adequate supply should this occur.  Having these discussions now, planning for the worst (yet hoping for the best of course), is highly recommended.” 

“Advancing orders and possibly airfreighting some cargo to allow for a 30-40 day cushion are pretty much the only options available, and what an importer may need to consider at this time.”

With all this inbound freight costs will escalate and cause gross margins to fall. 

In China this has been on-going since November.  While the country believes the rate of infection is slowing, we are not sure that there are any independent world health results that independently substantiate this.  

Summary

During the days following 9-11, many wondered if the business world would spiral into a depression – it didn’t.  But, it did “pause” for a few weeks.  Business freely shared what they were doing – let’s do this now. 

We have additional companies’ input we have received and will publish quickly.  If you would like to share questions and thoughts you have, please send them to me at bbarry@fcbco.com or feel free to make an appointment on my calendar to discuss. 

We pray to God that your family, friends and employees can weather this pandemic. May God bless your plans.  

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