The current environment is unprecedented. Many businesses will experience an immediate, steep decline in revenue but with a very uncertain duration, depth of impact, and timeline for resolution.
We are not yet in a textbook restructuring situation (for most industry sectors), but many companies will be presented with a unique set of challenges and opportunities.
• Shifting levels and timing of demand
• Shifting customer needs
• Shifts in demand between product/service categories
Companies must make some immediate and longer-term changes in their operating model to remain profitable and grow.
Businesses need an approach and tools to quickly conserve cash; restructure targeted elements of the company’s value chain; and maintain credibility with stakeholders including employees, customers, suppliers, and lenders.
• Establish frequent communications to all stakeholders, and create opportunities for 2-way communication at all levels
• Establish clear governance policies, and task forces within the organization to handle all enquiries from stakeholder groups and address and prioritize issues as they arise
• Regularly check the CDC Resources for Businesses and Employers for important updates on how to keep your employees safe
• Establish new policies around prevention and incident response
• Protect employee privacy
• Determine necessary compliance with Families First Coronavirus Relief Act
• Check with payroll providers to ensure they are creating the mechanisms to track Families First Coronavirus Relief Act for tax credits
• Start all shifts with new safety guidelines
• Increase frequency of cleaning services
• Develop alternative staffing models that mitigate future business continuity issues
• Proactively monitor employee health status
• Develop alternative shift patterns to limit exposure
• Ensure key executives are distancing to protect leadership continuity
• Implement door access control; monitor incoming employees’ temperatures
• Apply “clean room” protocols
• Launch communications to reorient employee behavior around the new mindset
• Get control of cash, assess inflows and outflows
• Control non-essential cash outflow and preserve sources of inflow through immediate communications with key cash sources and stakeholders
• Assign resource to focus on immediate management of A/R and A/P, aggressively collect on A/R and push out payments in A/P
• Extend vendor payment terms
• Review, update and optimize inventory planning and management processes to take out excess working capital immediately
• Renegotiate debt payment schedule/debt relief
• Build a detailed 3 and 6 month cash flow projection; update it weekly
• Assign resources to pursue collections on a proactive weekly basis
• Reset forecast and inventory algorithms to align with new demand projections, reducing excess working capital tied up in inventory
• Adjust supplier payment terms
• Put controls in place for placement and timing of P.O.s
• Speed up plans to secure sources of material and component supply
• Check critical supplier health and production locations, and assess contingency plan details
• Refocus manufacturing operations, and optimize planning and scheduling in volatility
• Consolidate production on most profitable facilities and production lines
• Develop actions to manage supply in the short term and diversify in longer term
• Clear, consistent communication is key, with both internal and external stakeholders
• Proactively negotiate with key vendors to ensure a stabilized supply in the near term – your suppliers are as worried about your customers as you are
• Place extra emphasis on Sales, Inventory, and Operations Planning (SIOP) processes as resource constraints set in
• Reduce 3rd party supply costs through supplier consolidation and renegotiation
• Review and de-risk your extended supply chain now – competitors and companies in adjacent industries will quickly consume capacity as they diversify operations in other low-cost supply regions
Re-examine:
• Fixed cost take out opportunities across
the entire footprint and supply network
• Sales resources
• Profitability of customers and products
• Projected procurement, HR, IT, and Finance transactional volume and staffing requirements
• Rightsizing projects that were previously delayed
Rationalize:
• Newly unprofitable products or SKUs
• Underperforming staff, facilities, or business units
• Unnecessary or non-critical capex projects
Reduce:
• Software seats
• IT maintenance costs while preserving your critical databases
• Resist the temptation to focus only on the variable cost quick hits
• Consider facility and supply chain network fixed cost rationalization, which can be your most powerful lever on EBITDA margin in the medium term under declining revenue
• Stop destroying value by selling products with negative contribution margin in a reduced revenue world. The math you did here a month ago may no longer be relevant; now it’s urgent
• Reorient sales resources to focus on the most relevant products, customers, and channels
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