Global supply chains haven't had this much disruption since World War II, and the United States wasn’t as dependent on oversea goods and manufacturing then. On March 19, J.C. Penney announced that it was closing 850 stores, affecting 90,000 store associates. Sadly, J.C. Penney joins an illustrious group of retailers closing for several weeks to try and flatten the curve of the coronavirus.
John Hopkins University says that 200,000 people globally have the coronavirus. One news source said last week that positive tests in the U.S. increased from 7,700 to 9,000 in 24 hours. But many cases of the virus haven't been diagnosed due to a lack of test kits and therefore are “presumptive.” Forbes has an article illustrating World Health Organization statistics by country, detailing how this virus is growing exponentially.
This crisis rapidly changes hour by hour, with closed school systems, closed restaurants and bars, and hospitals stretched to the max. As of this article, the entire state of California has been ordered to “stay at home,” requiring nonessential businesses to close.
Considering the complexities of global supply chains, we want to concentrate for a minute on inventory availability. Without having “the right” inventory, you have no sales. Your strategy for this crisis needs to be different than normal merchandise planning.
- How will the disruption to your supply chain affect sales and your company's ability to stay open? Formulate your business strategy ... quickly. The first step is to re-project your order demand for the crisis period. From this, you can project inventory needs and labor hours required for fulfillment. The length of time that health authorities are saying this could be at its highest threat is anywhere from one month to four months. One projection is 18 months with a cycle of reinfection. China has been experiencing this since November 2019. It may be best to use a six-week to eight-week projection period. There are other important aspects in addition to inventory, such as local and state health authorities’ directives about “social distancing,” “self-quarantine” and employees availability.
- Will you have inventory available to fill orders? Pareto’s Law or 80/20 rule (i.e., 20 percent of the products give you 80 percent of the sales) applies to many retail and e-commerce merchandise assortments. If Pareto’s Law doesn’t hold for your business, what key items are you going to keep in stock that maximize sales? Chasing all items through the supply chain may not be feasible. Take care of these key items and you may be able to weather this pandemic from a sales perspective. Ask yourself the following questions:
- Are the factories you work with affected by the virus? Are they at full capacity, on reduced hours for production, or closed?
- Are countries you import from in lock down?
- When you look at key items’ in-transit and in stock, how long will item inventories last? Are their alternative suppliers? Can you place larger purchase orders for key items to maximize sales?
- Do you have internal expediters keeping close watch on these key items? Can you be more proactive in advance of a shipment to be sure it’s to ship on time?
- Be prepared to pay higher freight costs. How will gross margin be affected?
- What does this strategy do to your cash flow needs? Can you increase lines of credit?
- What will be the impacts on freight forwarders and carriers? Global transportation systems have been strained with the pandemic and will face further capacity constraints in the coming weeks. Priority will obviously be given to those shipments that focus on medical supplies and other life-saving needs. Companies will need to be patient and keep in constant contact with overseas shippers, trucking companies and small parcel carriers. These companies will continually be impacted as the virus continues to spread. The carriers will be fielding a significant number of calls and questions on shipping delays, so be sure to clearly communicate with customers on how shipments may be affected. As more and more commercial flights are grounded or cancelled, carriers like FedEx have the ability to handle this freight. UPS is working with the U.S. government to assist with logistics planning and operations to support coronavirus testing sites. Both FedEx and UPS will continue to focus on response efforts to assist the country as needed, retailers and consumers alike
It’s extremely hard to accept this is happening to our businesses, nation and economy. We hope and pray that your business weathers this and comes back quickly. May your family and your employees stay healthy!
Brian Barry is president of F. Curtis Barry & Company, specialty consultants in product fulfillment for e-commerce, catalog, retail companies and wholesale distribution.
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