April 2, 2020

COVID-19 Support: Perspectives from Operations and Supply Chain Leaders

Written By

Stripes Team

Stripes covid session 2 web 1

In response to the challenges many of our businesses are facing from COVID-19, Stripes has been hosting a series of virtual panel discussions led by subject matter experts from across our network to share lessons learned. You can also view summaries and key takeaways from our past panels here. We recognize that each company’s situation is unique but hope this information will provide some perspective on how others have approached these uncertain times. As the environment around us has been changing faster than ever, we expect to add or revisit topics and additional resources as they become pertinent and helpful.

This column focuses on addressing operations, supply chain management and finance challenges posed by COVID-19. We’re thankful to draw insights from:

  • Jeff Pedersen, Stripes Operating Partner, former CFO of Handy and Head of Hardlines Finance at Amazon
  • Michael Brown, CFO and VP of Global Supply Chain at Honeywell
  • Garry Embleton, VP of Operations and Supply Chain for SC Johnson’s Lifestyle brands
  • Stuart Horlak, SVP of Operations at Legrand

We thank our incredibly informed and insightful panelists for taking the time to participate, particularly while they are facing many of the issues we discussed during our session.

While each firm's response will be different, our panelists shared what's been working for their companies in response to COVID, including:

  • If you have in-house manufacturing or fulfillment, create single entrances for facilities, screen employees daily with workplace entry questionnaires, eliminate queues, close common spaces, prepare a response checklist if an employee tests positive, and contract with a third-party sanitation service that can sterilize your facility quickly to minimize downtime
  • Prepare for potential shipping disruptions. Review your customer contracts to ensure you will not incur fines or other penalties from delayed shipments, ask retailers to relax ship ops penalties, and set up back-up fulfillment options (e.g., enabling factories or retail stores to ship directly to customers)
  • To mitigate against potential manufacturing and supply chain disruption, create redundancies wherever possible, and create standard workflows and cross-train workers to build flexible capacity
  • Use this time to build internal capabilities for the long-term. This is a unique opportunity to review your budgeting and demand forecasting processes and to learn a lot about the leading indicators that drive them, such as by monitoring demand curves weekly through shipment and consumption data

For more recommendations from our panelists, read below:

On Communicating Externally And Internally

Tips on internal communication and motivating employees

  • Remove barriers of communication and layers in decision-making processes; senior leadership should be actively involved and react quickly to the right signals
  • Proactively communicate with employees, ensure them that they are in a safe environment with minimal transmission risk, and explain the measures you are taking and why you are taking them
  • Prioritize the most critical elements of the business, including demand forecasting
  • Be decisive and fast in cost containment measures, and base decision-making on data wherever possible

Tips on maintaining proactive communication with suppliers

  • Over-communicate, but be precise
  • Touch base frequently with critical suppliers and offer assistance (ideas: help them acquire masks for workers, offer guidance on employee screening processes based on your own policies, provide guidance on government assistance options)
  • Send letters to suppliers indicating that you deem them essential for business continuity
  • Consider the solvency of your supplier base and assess daily if any of them are under financial risk

Tips on maintaining proactive communication with customers and retailers

  • Communicate with retailers and acknowledge that this is an industry-wide issue
  • Be transparent about any possible delays and proactive measures you are putting in place
  • Review policies in place with retailers and ensure you won’t incur any fines if you encounter delays; some firms asked major retailers to relax ship ops penalties and they have been very understanding

On Budgeting And Demand Planning

General suggestions on adjusting budgets and demand planning

  • Review your models and plan for: how to deal with spiking demand (if relevant), how to return to normal (and assume retailers will return inventory to normal levels), and how to keep inventory under control (especially in a potential financial downturn scenario)
  • This is an opportunity to review your processes, especially in cases where you previously didn’t have the bandwidth to prioritize the exercise. Through this crisis, you can learn a lot about how your forecasts are built and whether or not they are based on data, statistics, consumption, and leading indicators
  • Don’t rely on historical data; anticipate what is ahead and proactively manage your cost structure
  • Expect to see continued demand variability; closely watch demand curves weekly by monitoring shipment and consumption data

On Inventory Management

Considerations to optimize inventory levels

  • Cash preservation is critical during this time, and thus it is important to avoid excess inventory; however, there are also certain cases to build up inventory
  • Consider building up inventory if appropriate for your business: if you have the balance sheet to support the investment, you might consider rebuilding inventory for top SKUs or componentry (i.e. if used for top SKUs or multiple SKUs), especially if you’ve historically been short. This could be an opportunity to emerge from this in a better position than where you were before the crisis
  • Avoidance of out-of-stocks can help maintain a strong customer experience during this time

If your business is experiencing heightened demand due to COVID-19 and you are short on inventory, some ideas to consider

  • Prioritize production of top SKUs and deprioritize niche and custom products. As an example, SC Johnson has prioritized its top turning SKUs, increased the number of facings for those SKUs by retailer (and ensured retailer alignment), and reduced its SKU mix for the time being; more niche or seasonal SKUs will slowly be re-incorporated
  • Prioritize keeping your most profitable distribution channel in-stock - as an example, in some cases, D2C may be your least profitable channel due to fulfillment and acquisition costs, so it might make sense to shift product towards protecting your other channels
  • If your business has a subscription component, prioritize keeping this business in-stock. If your subscription business reaches out of stock, your customers will likely turn to another brand, and it will be expensive to win them back
  • Turn off demand-driving activities such as promotions and discounting to help free up cash

On Mitigating Against Potential Supply Chain And Fulfillment Disruption

Considerations to help mitigate against potential disruptions

  • Create redundancies where possible to risk mitigate - for example, if one distribution center goes down, have the ability to shift to an alternate DC if possible
  • If possible, set up the ability to ship directly to customers from factories or owned retail stores (if applicable), versus from DCs. However, if you do so, you must take additional measures to ensure product quality and to manage the customer experience
  • Cross-train workers where possible to build flexible capacity to accommodate swings in volume
  • So far, disruption in the global logistics market has been lower than expected, aside from some minor transportation interruptions from China over the last four weeks

For Those With In-House Manufacturing Or Fulfillment

Protocols to ensure employee safety in factories and distribution centers

Consider implementing a preparedness plan, which can also be used for future incidents. This should include measures to screen workers daily, policies to follow if an employee tests positive, and preparing a response checklist. Measures to consider implementing:

  • Review CDC guidelines
  • Maintain distance. Eliminate queues where possible, shut down common areas, and contact groups sharing your facilities and your supplier bases to understand their procedures and how they could put your business and employees at risk
  • Prioritize communication with employees, including the measures you are taking and why you are taking them
  • If appropriate, screen employees daily. The CDC has encouraged employers to implement temperature screening in affected hot spots, and the US Equal Employment Opportunity Commission (EEOC) has also issued guidance permitting employers to implement screening measures. Our panelists suggested that facilities create a single entrance, use third parties to administer mandatory pre-shift temperature screening and set a cut-off of 37.3 C / 99.1 F, and implement entry screening questionnaires to assess possibility of infection

What to do if an employee in a factory or distribution center tests positive

  • Review CDC guidelines here and disinfection recommendations here
  • Prepare a contact questionnaire in order to quickly identify the individuals the infected person was previously in contact with to implement pre-quarantine where necessary
  • Prepare a third-party contact that can sterilize your facility quickly - this will minimize your downside and downtime to resume operations quickly (current CDC guidance is one day after sterilization)

Should you have any follow-up questions from the summary above, or if you have any other suggested topics or questions for us to cover, please submit them through this form.

Stripes covid session 2 web 1