Wednesday 25 March 2020

(PART 3) - CORONAVIRUS BUSINESS CONTINUITY PLANNING

Business Continuity Planning for Corona, Financial Crisis

Doing business in a time of Coronvirus/Covid-19, Supply Chain disruption and Business interruption - Immediate and Short Term planning priorities


NOTE:


  • This is a developing situation. Accordingly, role players continue to react and markets continue to adjust to the emerging situation. The historical data, facts and figures contained in this article were accurate at the time of publication, but statistical figures and some facts can change over time (e.g. share prices, mortality figures, etc). References below for further reading.
  • This article is part 3 in a 3-parts series:
  • Part 1. What happened and how did we get here? (Word count: ±852)
  • Part 2. How can the current crisis affect commerce and industry? (Word count: ±1080)
  • Part 3. What are the business priories – immediate and over the next few months? (Word count: ±1675) 



C. What are the business priories – immediate and over the next few months?

If you have not yet read the previous articles (see links above), it is recommended that you read them to see the bigger picture. At the very least, read Part 2 - possible impact of the crisis on business 


 SA President announces Corona lockdown 23 March


On the 23rd of March 2020, the South African President announced several far-reaching and bold emergency measures, including a country-wide lockdown which comes into effect 26 March until 16 April 2020. During this lockdown period only selected types of organisations and businesses will remain open. For South Africa* this has been broadly defined as:
  • pharmacies
  • laboratories
  • banks
  • essential finance systems, such as the Johannesburg Stock Exchange
  • supermarkets
  • petrol stations
  • healthcare providers
  • companies involved in making or distributing food, basic goods, and medical supplies.
The categories of employees exempted from lockdown include:
health workers, in both the public and private sectors

  • emergency workers
  • security services, including police, soldiers, traffic officers
  • those in the production, supply and distribution of food and other basic goods
  • those in essential banking systems
  • people who maintain water, electricity, and similar systems.
* Different measures apply in different countries - please check with your local government.



This means businesses and organisations will have plan differently, depending on if they are locked down, running on a skeleton staff or staying open business.


What should business leaders be focussed on right now?


This is not a dress rehearsal. Business Risk Management and Business Continuity mode should have kicked in weeks ago.



There is no one-size-fits-all plan for dealing with the current situation. Below is a list of considerations which may, or may not apply to your organisation - please consider the following and determine the extent to which these are relevant for your specific organisation type. If and where relevant, attempt to tick off as many as possible of the objectives below:


Command center dashboard
Photo credit: Zignal Labs Dashboard

1. Set up / Create a Nerve Centre structure, consisting of:



  • Executives
  • Operations, Supply Chain - Procurement
  • Finance, HR, IT, (consider Risk Management, Legal)
  • Communications

The Nerve Centre acts as the command and control unit, from where accurate information is distributed. It maps and manages issues, and aligns other organisation project streams. The Nerve Centre should ideally include scenario planning expertise. For purposes of decision making, it is important to take into consideration various reliable sources of information and to update information daily.

 Free remote team software


  • Define governance requirements, Chain-of-Command, roles and responsibilities (to the extent that these may differ from typical daily responsibilities) as well as decision-making levels (emergency schedule of delegated authority).
  • Establish a meeting schedule whether working from home or with a skeleton team at the office. Define and communicate all relevant operational details, operating hours, venue access, service requirements, daily status meetings, etc.
  • Microsoft Team software
    Photo credit: Microsoft Team software
  • Test all work-from-home / remote access infrastructure and communication 
  • Consider different sources of information and make use of professionals and experts where possible.
  • The sharing of a consistent single source of regularly updated, valid, accurate and concise facts and decisions inside the organisation is invaluable. It will also prevent unnecessary deviations and debate on what the facts are, and prevent incorrect assumptions. For this reason, it is important to speak with one voice.
  • Define and clarify reporting metrics.
  • Develop plans and tactics to deal with the business interruption.
  • Ensure there is both business continuity planning – from a short-term basis (stand-in/acting in the case of illness or unavailability) as well as long term basis.
  • Consult with the necessary in-house Topic Matter Experts and do not make decisions which are outside your domain of expertise or where the decisions impact other business entities, business units or departments with no consultation.
  • Plan for business recovery once lockdown is over.



2. HR team should focus on:



  • Clear policies and procedures, and the communication of these policies and procedures to all affected parties. If in doubt on legal aspects, obtain external legal expertise.
  • Resource planning and availability – management of employees and contractors where resources are required vs non-essential staff working from home.
  • Occupational Health and Safety and the Protection of employees – focusing on both those employees who are required to remain at work during the lockdown period as well as those at home.

Masks and safety kit
  • Where required – the availability of work from infrastructure.


3. Operations and Supply Chain should focus on stabilising the incoming and outgoing Supply Chain:
  • Identifying mission-critical and significant service lines, contracts, clients, projects and products at risk or affected e.g. by supply chain delays or general interruptions – perform supply chain mapping where necessary.
 Mapping your supply chain

  • Conducting business impact analysis, risk assessments, scenario planning (e.g. at varying levels of capacity), and presenting mitigation steps and contingency planning for Nerve Centre / Executive approval.
  • For businesses that remain open during lockdown consider the implications of increased demand and scaling down once lockdown is over on Production planning, Inventory management, Demand management, Planning logistics
  • For business closed during lockdown consider potentially Scaling down and scaling up after lockdown Production planning, Inventory management, Demand management, Planning logistics
  • Regardless of closing or staying open, consider Asset protection.
4. IT should work closely with other workstreams, but also focus on


 IT risk during Coronavirus lockdowns


  • Identifying mission-critical and significant systems.
  • Conducting risk assessments, scenario planning, and presenting mitigation steps and contingency planning for Nerve Centre / Executive approval.
  • Cybersecurity.
  • Data disaster recovery and off-site/cloud storage.
  • System access in case of staff-changes.
  • Testing and ensuring the availability of remote access and support for off-site employees.
 Phishing scams spike during Corona

5. Finance should focus on:

  • Performing financial stress testing - Evaluating liquidity, working capital and cash flow requirements under various scenarios.
  • Review debt exposure and repayments.
  • Review emergency budgets and marketing – while we are in a lockdown (in the short run) the typical marketing expenses might not be.
  • Fraud and risk controls.
  • Reviewing emergency financial support from your government. For South African organisations only - Dep of Trade and Industry and tax measures announced by SARS to identify those applicable.
 Business relief for SA businesses during Corona lockdown
 SARS Corona information for businesses



6. Communication - Nobody likes a surprise, so communication should be with:
  • General - update the website to reflect business hours during lock-down and functioning contact details.
  • Suppliers – For mission-critical and significant suppliers, service lines, contracts, clients, projects and products at risk or affected, communicate on a supplier-by-supplier basis if and how projects, contracts or orders are affected.
  • Clients – For mission-critical and significant clients, service lines, contracts, projects and products at risk or affected, communicate on a client-by-client basis if and how projects, contracts or orders are affected.
  • Employees.
  • Financial service providers.
  • Business Insurance providers.

What should business leaders not be doing right now?


  • Do not ignore the elephant in the room.
  • Do not be complacent or tell yourself your business or organisation is safe from the combined effects of the Coronavirus, global supply chain disruption or the financial crisis, or that this too will soon blow over.
  • Do not believe that any strategy, plan, or tactic once prepared and implemented, is flawless or foolproof. Authorities, other role-players and markets will, over the next few weeks, continuously monitor and adjust their response to this crisis. This, in turn, necessitates that business also operates on the basis that economic, financial and operational conditions can and will change. The effectiveness of tactics and steps implemented will have to be monitored continuously, and adjusted on an ongoing basis. This may require back-up plans for your contingency plans.
  • Do not assume that the availability of information equates enlightenment or knowledgeability. Not all personnel or stakeholders have access to the same information or are equally discerning and able to automatically interpret available information in the same manner.
  • Do not be tempted to push up prices excessively or participate in price gouging which increases prices unfairly or unreasonably beyond the reach of the vulnerable. This is illegal in terms of the Consumer Protection Act, and companies found guilty of this could find themselves facing serious repercussions including legal prosecution, in addition to reputational damage. Also do not attempt to exploit fear or shortages – this is highly unethical.
  • As an employer, do not expose staff and employees to unnecessary risk and do not take rash decision affecting staff. Employers have a Duty of Care (legal in terms of Occupational Health and Safety Act 85 of 1993 (‘OHSA’) and common-law, as well as a moral obligation) towards their employees. This applies in the workplace, whether in the office or on the factory or shop floor, or while travelling for work purposes, and are required to take all such reasonably practicable precautions as may be required.

CONCLUSION



Over the last few years, life has become more and more interconnected - technology, economies, societies. The pace of change increased exponentially and with it the rate and impact of disruption. Within the space of a bit less than 3 months, the Coronavirus, or Covid-19, has wreaked havoc on day-to-day human life nearly around the world, as well as on the international economy. Life as we know it will be affected, possibly in the long run.




For business, this is the new normal – things can and will change, faster than ever before and more profoundly than ever before. Business can and will be interrupted and disrupted, and will in all probability occur more frequently. The key to business survival is in our ability to innovate, adapt and regenerate.




“Every success story is a tale of constant adaption, revision and change” – Sir Richard Branson.




As humans over generations, as a society and as business and industry, we have been able to make significant changes and pushed the boundaries of science to get us where we are today. Sometimes by leaps and bounds, and sometimes baby-steps. We will adapt and overcome this present situation too.




Welcome to Business Unusual Version 2020. Please fasten your seatbelts.


** Stay safe **.




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For more information, visit our website on www.cogniplex.co.za. A copy of this article is also posted on Linkedin.com 

All original artworks remain the property of their respective owners.

Tuesday 24 March 2020

BUSINESS UNUSUAL (PART 2) - HOW WILL CORONAVIRUS AFFECT BUSINESSES?


Business Unusual Banner

Doing business in a time of Coronavirus/Covid-19, Supply Chain disruption and Business interruption - Potential impact on Businesses and Organisations


NOTE:


PART 2 – What is the potential impact on commerce and industry?

The combined effects of Corona and the pretty much simultaneous Oil war is severe for global industry and commerce:
 Apple's production problems
  • The fall-out happened so fast that it simply was not on the radar of most organisations. Even the BCI (Business Continuity Institute) Risk Ranking (based on a survey done at the end of 2019) ranked non-occupational disease (including Coronavirus) at position no 21 out of the top 22 risks on their “2020 Risk and Threat Assessments” for the next 12 months.
  • The global supply chain was destabilised on a previously unanticipated scale. On the manufacturing side, being China, firstly by inability or delays in shipping stock out, and subsequent factory closures, leading to unplanned production stoppages and stock shortages.
  • In China itself, the shutdown had a hugely detrimental effect on the economy, e.g. car sales for Feb 2020 fell by 81.7%. Manufacturers struggle to reopen – Apple’s manufacturer Foxconn anticipated to regain only 50% capacity by the end of February, and an estimated 80% capacity by the end of March. 
  • Large international buyers who import from China usually buy enough stock to carry them through the Chinese New Year’s holidays, but as a result of delays in receiving stock, many factories are running out of stock due to unexpected shortages. This, combined with the Corona-impact on health-and-safety requirements force manufacturers to close temporarily (think e.g. VW, Porsche, BMW, Ford, Chrysler PSA, Airbus), causing further disruptions down the chain.
 VW production to shut down

  • International Travel is severely being curtailed, and big passenger aeroplanes are grounded. Airports typically were not built to offer long term storage as airport space is typically at a premium. As a result, airlines are desperately seeking affordable and safe long-term storage as thousands of trips are being cancelled.
 Corona grounded airplanes - now they need parking space

  • Lastly, on the consumer side, panic buying is putting further pressure on the system due to unexpected volumes.
  • This all leading to hitherto unseen levels of interruption in the global supply chain (Bullwhip effect + the Reverse Bullwhip effect) which may continue for months to come before supply and demand stabilise again.
  • Financial markets around the world were hit hard in the fall-out, e.g. Nasdaq experienced the biggest single-week drop since the 2008 financial crisis, and US equities suffered their worst fall since Black Monday in 1987
The disruption of day-to-day life and the very tragic human cost of the Corona/Covid-19 virus on families and communities is severe. The combined effect of the aforementioned factors is causing havoc on international financial markets on a global scale, and more so in emerging economies such as South Africa. This impact may continue for the foreseeable future. The World Economic Forum calls it an "economic earthquake", what some would say is a perfect storm, and what others refer to as a Black Swan event - an extremely rare event with severe consequences.
Consider the following cases:
  • The public education system in SA feeds more than 9 million disadvantaged school children daily. Extended school closures mean no food for many children – a sad but direct impact on the most vulnerable in our society.
 School feeding scheme

  • SASOL – the SA petrochemical giant caught up in the Oil war as collateral damage. Dropping international oil prices as well as overspend on their Lake Charles project resulted in an initial one day drop of 46.5% in the share price. Followed by subsequent movements over the following days, this cumulated in a +- 95 % drop since last year and loss of shareholder value down from R450 billion to ± R23 billion.
  • A South African wholesaler/distributor (who shall remain nameless), who identified early 2020 (or thereabouts) as the perfect time for migrating to a new operational IT system, as well as moving into new facilities. Both activities at more or less the same time - What could go wrong, right? Unforeseen issues with the system appear to have resulted in system driving picking glitches and order backlogs. This, in turn, caused significant business interruption, missed deadlines and furious customers, culminating in certain reputational damage. All this before Corona kicked in.

Potential Business Impacts 


These are but three real-life case-studies of what has happened is happening and may continue to happen to businesses, organisations and society in general in the foreseeable short-term. Effects (specifically on commerce and industry) could include the following (in no specific order):

 Panic buying in South African shops
  • Panic buying
  • Capacity constraints
  • Inability to service clients
  • Suppliers out of stock
  • Unplanned delays in receiving stock
  • The increased cost of operations
  • Inability to project demand accurately
  • Inability to project stock requirements
  • Increased working capital requirements
  • Delayed cashflow
  • Increases in debt repayment
  • Unavailability of spares
  • 3rd party credit risk
  • Production or service interruptions
  • Customer complaints
  • SLA breaches
  • Contract breaches
  • Missed deadlines
  • Lost customers
  • Reputational damage
  • Inventory previously considered as low-risk now being targeted by criminals (e.g. Face masks) due to increased demand
  • Security of assets and IT systems/stock shrinkage
  • Unusual spikes in demand
  • Stock-outs resulting in missed sales
  • Short or incomplete deliveries
  • Stock stuck in transit or ports
  • Production stoppages
  • Factory shutdowns
  • Store closures
  • Forced changes in suppliers
  • Forced changes in raw materials
  • Loss of productivity
  • Loss of revenue
  • Ineffective crisis management
  • Inability to make executive decisions
  • Inability to process transactions
  • Loss of key staff
  • Succession plan gaps
  • Absence/illness/quarantine of Key Decision-Makers, Topic Matter Experts, General workforce, Contractors, Service providers, Supplier reps / Key Contact Persons
  • Inaccessibility of facilities (e.g. Due to temporary area quarantine requirements)
While the business impacts vary from one company to the next and between industries, business and industry will generally feel in the impact of greater variability, increased uncertainty and more risk.

Potential Industries Affected 


Industries affected off the top of my head include (but are not necessarily limited to): Arts & Culture, Education, Entertainment, Events, Food & Beverage, Gambling and Casinos, Healthcare, Hospitality, Manufacturing, Retail, Finance, Banking, Transport, Logistics & Supply Chain, Health, Safety & Security, Sports, Tourism. And further sectors may be indirectly affected by a fall in consumer confidence or changing consumption patterns such as Building & Construction, Energy, Property, Investment, and Insurance. And possibly a couple of others too.

CONCLUSION


The fallout and contagion (both medically and financially speaking) is material and pervasive. Very few businesses or organisation will not be affected in some shape or form.

In the next post, we will consider potential steps management can take in order to limit the effect on business or organisations.


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For more information, visit our website on www.cogniplex.co.za. A copy of this article is also posted on Linkedin.com 

All original artworks remain the property of their respective owners.


  

BUSINESS UNUSUAL IN A TIME OF CORONAVIRUS (PART 1) - WHERE AND HOW DID THIS CRISIS ORIGINATE?


Doing business in a time of Coronavirus/Covid-19, Supply Chain disruption and Business interruption - Where and How did this crisis originate?


NOTE:


  • This is a developing situation. Accordingly, role players continue to react and markets continue to adjust to the emerging situation. The historical data, facts and figures contained in this article were accurate at the time of publication, but statistical figures and some facts can change over time (e.g. share prices, mortality figures, etc). References below for further reading.
  • This article will be posted into 3 parts:

PART 1 – What happened and how did we get here?

2020 is fast turning into a watershed year. In early January the global economy was chugging along nicely, with some international Indexes peaking around record highs. However, New Year euphoria was cut short as news gradually broke about a virus spreading in Wuhan, China.

Figure 1 - Wuhan Map

Wuhan is a hi-tech hub and China’s “motor city”. It is the biggest city in Hubei province, known as the “thoroughfare of China” by virtue of being a transport and industrial hub for central China and the region’s political, economic and commercial centre. More than 300 of the world’s top 500 companies have a presence here. 

By 13 January, the first case was identified in nearby Thailand. By 22 January 2020, the novel coronavirus (subsequently referred to as Covid-19) had spread to major cities and provinces in China, with 571 confirmed cases and 17 deaths reported. On 23 January 2020 (2 days before Chinese New Year), authorities informed residents of Wuhan of an imminent lockdown from 10 am. An estimated 300 000 citizens left the city immediately. The lockdown spread as quarantine was imposed in various cities and regions. On this same day that the lockdown occurred, the first case of Corona was identified in Singapore. From early February, Chinese authorities began shutting down factories in a desperate attempt to halt the spread of the virus.

This plan did not work, and virus contagion spread to the rest of the world. And economic contagion followed – the following is a summary: 
  • China is the world's manufacturer and is also the world’s largest container cargo handler and home to seven of the world's 10 busiest container ports – processing around 30% of global traffic or around 715,000 containers a day in 2019
China factory activity plunges
  • The lockdowns meant that factories could not get stock shipped out that was already manufactured and simultaneously stopped manufacturing altogether. China’s manufacturing activity plunged to an all-time low in February, with the official manufacturing purchasing managers’ index (PMI) slowing to 35.7, according to the National Bureau of Statistics (NBS). Comparatively, during 2008’s Financial Crisis the manufacturing PMI only dropped to 38.8 in November 2008. Services were similarly affected, and the services index almost halved last month to just 26.5 from 51.8 in January (and first time lower than 50 since the index was started 15 years ago in late 2005.
 Reefer surcharges rocket due to Chinese port plug scarcity

  • Incoming cargo clogged ports and shipping lines started charging surge fees for refrigerated containers importing food. Some cargo ships left China carrying as little as 10% of TEU capacity, others cancelled trips. 
  • Overall China’s exports and imports plunged. Exports fell by 17.2% in January and February combined compared to the same period a year earlier, according to the General Administration of Customs
  • A survey by Beijing-based think tank the Shanghai International Shipping Institute shows that capacity utilisation at the main Chinese ports fell by 20-50%, while more than one-third of ports said storage facilities were more than 90% full.
 Wuhan residents trickle back after lock down

International impact

This lowered throughput had a knock-on effect on the other side of the Supply Chain in receiving countries:
  • LA handled 705 000 containers in Feb 2019. The same period Feb 2020 was down to 544 000 or 22.87%. By 18 March Los Angeles ports have seen 40 + “blank sailings” - ships scheduled to arrive that didn’t, numbers previously unheard of. 
  • On the Asia-Europe trade route, at least 61 cancelled sailings have been announced, representing a 151,000 TEU capacity reduction. China typically represents about 30% of Hamburg's container throughput and about 25% of Rotterdam's. Rotterdam Port Authority estimated that a 1% drop in its annual volume, which after recording throughput of 14.8 million TEU would amount to 148,000 TEUHamburg harbour reported a 40% plunge in trade volumes.


Oil Price War

 Oil war

Then, on 8 March 2020, after a potential oil production cut agreement with Russia fell flat, Saudi Arabia initiated a price war with Russia. This triggered an immediate international fall in the price of oil, with US oil prices falling by 34%, crude oil falling by 26%, and Brent oil falling by 24%.  Oil prices dropped to 18-year lows. For more info see here and here 

CONCLUSION

The fallout and contagion (both medically and financially speaking) spread nearly globally in the space of 3 months. This caught many off-guard, as global supply chains and financial markets were disrupted. In the next post, we will consider the potential and combined impact of the virus, supply chain interruptions and business disruption on commerce and industry, and potentially on your own business or organisation where you work.

If you like this post, please Like, Share and Comment



For more information, visit our website on www.cogniplex.co.za. A copy of this article is also posted on Linkedin.com 

All original artworks remain the property of their respective owners.

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