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Redefining the new ‘normal’: Agile responses in uncertain conditions
5 May 2020
By Oliver Wight Partner, Gary Connors
We all know the theory; safety stock is calculated using a formula that includes the variability of the demand, the reliability of supply and the desired customer service. But what happens when conventional wisdom no longer applies and doing what you’ve always done is no longer an option? In this blog I will offer some unconventional wisdom for these unusual times.
Speed trumps accuracy right now; organisations that freeze in the face of this challenge will later regret their paralysis. Action is preferable to precision; getting it wrong is often better than doing nothing. As Franklin D. Roosevelt taught us, ‘Above all else, do something’.
When we look back on how we managed the coronavirus crisis, we will see that it is not good enough to doggedly pursue decisions that are clearly not working. We will see that the organisations that prevailed were those that did something, and - where appropriate - accepted that they got it wrong, learned from it and moved on quickly. We will conclude that failure is an option if you do it fast and learn from it. This will define how well we came through these frightening times.
Unconventional is the new normal so the ability of your organisation to think outside the box will define how well it comes through this crisis. Thinking differently may mean a clothing manufacturer turns its hand to making personal protective equipment (PPE); cosmetics manufacturers to making hand sanitiser and engineering companies to making ventilators.
This new way of thinking needs a culture of innovation within the leadership of the organisation and a leadership team that has been successful under different circumstances may find this a difficult mental leap and might find it helpful to view the situation from a totally different perspective.
For example, a manufacturing organisation may view its options from the perspective of a service organisation and a technology organisation from the perspective of a manufacturing organisation. These are the paradigm shifts needed to challenge and overcome the constraints of conventional wisdom and usher in new ideas and solutions more relevant to these new times.
Understand your abnormal demand
One of the first signs of us entering these new times was the unusual impacts on demand. Panic buying and stockpiling distort ‘real’ demand. The ‘real’ use of toilet paper is not increasing in proportion to the panic buying while the ‘real’ use of hand sanitiser is. It is critically important to understand the difference between these two types of demand to prevent a bullwhip effect.
In the instance of toilet paper, the proper response is to influence the demand by restricting availability to customers to match the normal demand plan and the current supply plan. The right thing to do would be to forecast future demand based on historical trends.
Conversely, the short-term demand for hand sanitiser is real, so supply should be ramped-up but not necessarily for the long-term.
Develop your contingency plans now and for the future
Hindsight is an exact science; while organisations may now be rueing the fact that they did not develop better contingency plans for the pandemic; there is no need to be fatalistic. There is still great value in developing these scenarios and contingency plans now. Organisations should start by developing their assumptions about the near-term future developments and create a range of contingency plans accordingly. These assumptions may well be changed daily as new information comes to light. Organisations should not become hung up on the assumptions that they got wrong but rather celebrate that they have now learned something that will help them to sharpen their contingency plans and develop better scenarios for the future. Being decisive and agile in the short-term is critical but it is equally important that organisations cultivate hot-house of ideas to develop a better set of long-term contingency plans for the future.
Protect the cash at all costs
The most common failure mode for organisations going through this crisis will not be the short-term loss of customers or reduced profits. Nor will it be their failure to deliver the top-line or even the loss of talent or increased competition. It will be a lack of cash. A quick response to protect the cash by reducing all but essential costs to prepare for the inevitable recession is critical. Maintaining liquidity will prove much more important than profitability.
Organisations that simultaneously deal with the short-term scenarios and the long-term outcomes will prosper. Organisations that overcome inertia, are bold and decisive, fail fast, and learn, will come out of this crisis stronger than those that do not.
For more practical advice on how to effectively combat the pressures and challenges posed on businesses by COVID-19, visit our COVID-19 Support Hub.