Perspectives- Managing Business Disruption during the Covid-19 Crisis
Today, managing disruption during the Covid-19 crisis largely depends on the industry in which companies operate. In 2008, the financial crisis had impacted many different types of companies across all industry verticals. During that period, many CFOs were forced to cut costs to ride out those difficult economic times. These are the strategies organizations must undertake during the Covid-19 crisis. It’s critical that companies across sectors are prepared for these volatilities including understanding the benefits of digital cross collaboration across Finance, Human Resources, Sales, R&D, IT and Operations.
Managing Cash Flows and the Digital Close
The strategy for many companies through the Covid-19 crisis is focused on managing the balance sheet, cash flows, maintaining financial liquidity and turning receivables into cash. COVID-19 has impacted liquidity and availability of cash reserves which continually need to be monitored through the duration of the crisis. Many CFOs are gathering their managers together to strategize the company’s financial forecast using scenario modeling capabilities. The benefits of scenario modeling is that it can help companies across industries evaluate how new sources of revenue can be generated from current assets. The strategies require a resetting of future forecasts using new set of assumptions for financial volatility to the balance sheet, cash flows and revenue streams. The process requires calculating the impact to financial payments with banks and ability to respond to these time sensitive financial obligations. The financial outlook has a definite impact on any company’s sales, marketing, product management engineering development and relationships with partners and customers throughout the duration of the crisis. For many companies, the disruption has also impacted financial reporting and disclosures to report results related to Covid-19 that impact financial estimates, projections, volume discounts, refunds and rebates on revenue contracts. As a result of these complexities companies are considering establishing virtual financial close playbooks to help them manage financials through the cloud including addressing reconciliation, tax and disclosures.
Risks to the Supplier Network across Industries
The most volatile of companies to the Covid-19 crisis are within the Life Sciences, Transportation, Pharmaceuticals and Manufacturing industries where there is a heavy reliance on manufacturing and supply chains. The crisis has disrupted the supply chain networks and this highlights the huge reliance of world economies on modern supply chains and a need for those pieces to work in synchronization. Pharmaceuticals industries in particular have huge vulnerabilities to the global supply chain and they are struggling with supply issues in shipping and manufacturing drugs to different parts of the world. Furthermore, there is a major shrinkage in the supply of the pharmaceutical inputs to manufacture products in the supply chain. Finance organizations can consider delaying payments in the supply chain in effort to optimize cash and receivables. However, delaying supplier payments will have a negative impact on all supply chain parties involved. If a customer delays payments to your business and you delay payments to your suppliers, eventually these delays will have a negative impact the entire supply chain in a gradual decline of businesses or the supplier. The supply chain is only as strong as its weakest link.
The Logistics and Transportation industry has suffered tremendously during the crisis where logistics providers face the challenges of transporting products across the world to be delivered to patients. This cycle has negative impacts on inventory levels and R&D efforts and especially when lines of credit and financing may be limited options. The reality is physical goods cannot reach their destinations without trucks and when logistics managers have been advised stay home for safety reasons.
The High Technology & Telecommunications industry is also reliant on Supply chains from China which has been disrupted by the Covid-19 crisis. High Technology manufacturers in Semiconductors are impacted by shortages in parts and from their global suppliers. Mid-Market technology companies and startups also face financial risks in managing cash flows to ensure at least 18 months of cash on reserve. These decisions have a high impact on deal opportunities and financing for startups and the debt market. Venture Capitalists have experienced risk before in 2008 during the dotcom downturn but they are used to handling risks to financing startup ventures and risks to venture funds portfolios. Overall, technology companies are exploring ways to preserve their core businesses, new ways of raising capital or postponing strategic initiatives until the situation improves.
Digital Workforce Strategies
Navigating the turbulence from Covid-19 has required companies across all industries to adopt new workforce strategies on how work gets done across businesses. Companies rely heavily on remote workflow approvals on budgets and expenses that require immediate decisions to sign a large deal or engage a large expense. Traditional industries have been forced to embrace remote working styles to control the spread of Covid-19. Airlines and Logistics industry workers have limited options for remote working and the limited routes and flights has impacted the transportation of cargo and on U.S. mail deliveries. On the other hand, the technology industry has significant advantages over other industries in that the distributed work model have always existed for employees in global environments. The availability of technology tools from Zoom, Skype and Slack have enabled remote working across all sectors, wherever it is possible. The technology industry is operating as “business as usual” but every link in the supply chain matters.
Are you considering taking Finance to the Cloud across Frameworks for Financial Close, Reconciliation, Tax, Financial Reporting, Disclosures, Forecasting and Planning? Read the blog How you can use EDI to help your business through the COVID-19 Crisis?
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About the Author
Rachel Messiah, Lead - EPM Practice in Oracle Line of Business
Rachel has 20+ years of extensive experience in Enterprise Performance Management and Management Consulting including collaborating with clients in multiple industry verticals.