Cash Flow Generation is a Priority – Part 1

Customer Tolerance Time

The amount of time that a customer is willing to accept before they order from an alternative supplier. This customer tolerance time would be the lead time from the point an order is placed to the point in time it is shipped.

The COVID New Normal

Since the first incidence of COVID-19 in China and its subsequent global spread, supply chains are now exhibiting significantly different characteristics. This is now being referred to as the COVID New Normal with the factors of what is now the old New Normal have only gotten worse. With different periods of lockdown around the world, companies have had to contend with weeks or months of delayed shipments, to then experience their own marketplace drying up. If companies had materials in stock and customer orders, many were being affected with staff shortages and subsequently not able to fulfil those orders. Sadly as we all know, the majority of companies around the world have suffered greatly, although a small number of companies have been lucky and they have seen their demand explode.

The fact is that companies all over the world are experiencing unprecedented levels of supply variability and demand volatility, beyond what was experienced in the old New Normal. Forecasts have truly been ripped up and thrown out the window.

During this extraordinary time we see ourselves in, governments around the world have been issuing safe working guidelines that must be put in place before industry can get back to work and the economy can attempt a jump start. In particular, these requirements include a need to implement social distancing by up to 2 metres (6 ½ feet) depending on the country. In some cases, this could even mean production lines having to be closed down as operationally they are not able to meet COVID secure guidelines.

The ability of companies to service their marketplace has now become significantly more complex and tougher. These operational issues in conjunction with those of the old New Normal will further amplify the bullwhip. Further demand volatility and supply variability within the supply chain will take place making it even tougher for manufacturing facilities to meet their customer requirements.

If a business is going to succeed, they must adapt to today’s COVID-19 New Normal otherwise they will no longer be able to exist. Adapting does not mean to accept and endure the constraints of this New Normal. Adapting is changing the way the business operates, the strategies, and maybe even the entire foundations of the business to enable survival and growth into the future. Failure to adapt and change could risk the future of the organization, as we discussed in a review of the 2016 Harvard Business Review. In this HBR article, the authors stated that there is a one in three chance that US Public Listed companies would be delisted by 2021, and this was written without any pandemic factors thrown into the mix. So add in COVID-19 and the levels of probability simply get worse.