These are truly unprecedented times. Strikes at ports and fuel prices sometimes disrupt supply chains. However, the coronavirus pandemic is causing impact and disruption to offshore manufacturing and shipping patterns that hasn’t been seen since World War II.
As the number of confirmed cases increases, self-quarantines have been replaced with mandatory lockdowns. Many states have closed all school systems for at least two weeks and it will likely be longer, perhaps the rest of the year.
We have been consulting with our clients about how they plan to deal with this from an ecommerce and multichannel supply chain perspective. This blog is based on feedback and observations from several of them.
How long will impacts from COVID-19 last? Dr. Anthony Fauci, the lead scientist on the Trump administration’s coronavirus response team, is predicting that disruptions to everyday life in the U.S. could last up to eight weeks.
Americans are being told to maintain “social distance” and generally shelter in place in an effort to slow the spread of coronavirus. It is uncertain how long the ripple effects will linger once cases begin to decline.
Availability of workers: When schools are shut, a high percentage 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,” he said. “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? 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?
Revising your gross order demand and net sales: One executive last week said, considering the effects on order demand early in this infectious cycle, “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, increased social distancing and lockdowns may further negatively impact these projections. Grocers and big-box stores are seeing everyday items disappear as shoppers stock up and prepare for a potential quarantine. Amazon has stopped accepting nonessential products into Fulfillment By Amazon (FBA) through April 5, severely impacting thousands of third-party sellers.
To better prepare, ask yourself these questions:
- What do you expect your demand and sales to be? Re-project your order demand
- What’s your estimate of available inventory (on-hand and in-transit)?
- How long will my projected inventory last?
- What is your net sales projection?
Bank line of credit: One client had their bank call and ask them not to draw 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?
Importing observations: There are two considerations an importer needs to be asking themselves at this time:
- What happens if/when goods arrive in the U.S. in the coming weeks that cannot be picked up and/or unloaded due to a lockdown? In short, this means the goods are not in your warehouse to fill customers.
- What happens if the origin country goes into lockdown, pausing the ability of your supplier(s) in that specific country to load goods?”
These are key decisions you need to consider in advance.
Potential impact of a lockdown: Fauci said he may eventually recommend a 14-day total U.S. lockdown because people are not heeding social distancing, such as spring break students in Florida. Many businesses and governments employees are working from home.
Based on the rate of infection in China, Italy and other countries, if your company is importing from a country with a rapid rise in infections, assuming that country will be locked down for at least 2-4 weeks is prudent. Thus, importers need to determine if they have adequate supply in this scenario. Having these discussions now, planning for the worst yet hoping for the best, is highly recommended.
With all this inbound freight costs will escalate and cause gross margins to fall.
In China this has been going on since November. While the Chinese government reports that new cases have all but vanished there, we’re not sure that any independent organizations have independently substantiated this.
Summary: During the days following the Sept. 11, 2001 terrorist attacks, many wondered if the business world would spiral into a depression. It didn’t, but it did pause for a few weeks. Businesses freely shared what they were doing; let’s do the same now.
We pray to God that your family, friends, vendors and employees can weather this pandemic. May God bless your plans.
Brian Barry is president of F. Curtis Barry & Company