By Tom De Waele, Bain & Company partner and managing director, Bain Middle East
The COVID-19 pandemic is a crisis unlike any the world has experienced in several generations—and one of uncertain duration. The process of slowing the spread of the coronavirus is itself disrupting many aspects of life, and anxious customers and employees are looking for reassurance and support as their needs change radically.
Consumer products companies have a significant role to play in providing both, communicating that protecting people—employees, partners, customers and so on—is their priority as they try to furnish goods in as normal a way as possible during an extraordinary time.
Beyond the mounting human toll of the pandemic, it has become clear that the economic consequences will be profound. If you’re a consumer goods company executive, or part of a leadership team, note that it is the efforts of employees and the loyalty of customers that will see a company through. As such, job No. 1 is to do everything possible to make sure that people are taken care of.
That principle is among the top priorities in the action plan laid out below. This is the time to think about what the future will look like, of how the lives of employees and customers will be changed and what your consumer goods company will need to do to meet their new needs.
The specific operational changes demanded are vast, encompassing urgent and sweeping matters of supply continuity, distribution and logistics, evolving customer relationships, and more.
The outbreak also underscores the importance of preparation, rapid response, continual learning, adaptation and communication in contingency planning. Above all, the safety of employees, customers and business partners is, and will remain, the highest priority. We recommend the following checklist as a way of helping leadership teams frame their multiphase response in the short term.
Set up and empower an emergency response team
If you haven’t done so already, immediately set up a cross-functional emergency response team attached to the office of the chief executive, the chief financial officer and the chief risk officer—potentially in a war room that operates virtually, given office closures, social distancing and the global nature of the team.
Give the team direct access to key executives and empower it to make cross-functional recommendations based on a rapid assessment of risks in critical areas related to workforce, supply, inventory and consumer sentiment. Outline clear daily responsibilities for the team in three areas: managing internal and external communications; tracking, reviewing and adjusting the emergency response; and reporting internal key performance indicators.
Where relevant, set up local emergency response teams (e.g., by region, country, business unit, manufacturing facility, distribution center or function). Moreover, you should give at least one person the full-time job of scanning relevant information on the spread of the virus, its impact on consumer demand, retailer reactions and actions by other consumer products companies.
Protect people as the utmost priority
Companies should protect their employees, customers, suppliers and other partners by communicating with local authorities and quickly transmit their recommendations across the organisation to ensure compliance with the latest guidance.
Quickly identify and nominate backup options for business-critical executives or function leaders. If one person is infected, the other person can step in to backfill. Cancel gatherings of 20 people or more that are not operationally critical. Prepare for work-from-home requirements, ensuring technology solutions are in place for employees to work from remote locations.
Reduce or eliminate nonessential travel. This includes third-party visits to your office. Move to video or conference calls for employees who visit customers (e.g., key account managers) and for salesforces if store visits are not required.
Review and adjust your production plan and inventory management
Determine your supply chain’s weakest links in terms of resiliency—workforce, raw materials, packaging, warehouse space, health and sanitary supplies, access to transportation—and address them in order of priority. Accordingly, you can quickly adjust production plans based on your product category exposure. Scale up for categories in high demand; slow down for categories seeing or anticipating a temporary decline.
Look into diversification of manufacturing as a risk arbitrage measure. Split production across countries, plants and teams, ensuring that, in cases of rapid outbreak or transmission, business-critical tasks are uninterrupted.
Stay close to raw material suppliers, and vigilantly watch for increasing lead times. Put into place contingency plans for alternative raw materials or input sourcing (or excess sourcing in advance of production) should raw material production facilities grind to a halt.
Turbocharge logistics flexibility
Work with authorities to understand potential lockdown areas and how you will be able to deliver in those areas. Revisit your transport and delivery plan with a focus on getting stock as close to stores as possible. You may need to switch tactics completely, by delivering directly to stores vs. distribution centers, for example.
Free up freight capacity by stopping planned deliveries of nonessential categories and aggressively enforcing minimum order quantities for freight. If short on capacity, work with retailers to see if near-term backhaul or customer pickup opportunities are available. Work with your logistics providers, or even your competitors, to leverage joint capacity, including exploring third-party on-demand logistics providers or less-than-truckload (LTL) flexible distribution options.
Stay close to customers while adjusting to demand
Shift the focus of key account management from traditional buying negotiations to ensuring the continuity of supply. For the most critical categories and customers, this could mean making temporary compromises, such as loosening accounts receivable terms.
For retailers, this could mean adjusting to short-term measures, such as lifting on-time, in-full fines. Work within agile, multifunctional teams (virtually, if in-person colocation becomes impossible) to quickly resolve pain points and bottlenecks and offer creative, resourceful solutions to clients.
It is key to accelerate online retail. Categories moving online during the outbreak are likely to move there for the long term. This means shifting toward pack sizes that are fit-for-purpose for online sales. At the same time, repurpose time and energy that you might have spent on pricing and promotion conversations to broader supply-focused topics. Doing what it takes to help often-vulnerable retailers succeed and maintain stock during the crisis can pay dividends in future customer relationships.
Adapt your marketing tactics and messaging
Deemphasize non-mission-critical marketing spending and activities. This will help free up the budget for mission-critical activities and for short-term improvements to cash and working capital. Adapt content and messaging to be timely, relevant and appropriate in the context of the pandemic. Broader health and safety messages—even if you do not play within the space—can signal a commitment to consumers. Cancel campaigns that could be found tone-deaf in the face of the crisis, harming brand equity.
Keep an eye on cash flow, capital and M&A
During times of crisis, it is critical to closely manage working capital and evaluate capital spending to cut or delay nonessential or nonstrategic projects. This is relevant for all consumer products companies, as a squeeze effect is possible across the board. A variety of working capital enhancements are possible, such as measures to accelerate cash conversion—increasing inventory turns through markdowns on slow movers, for example.
If necessary, companies can also reduce their overhead costs by canceling training that is not operationally critical and paring marketing spending in relevant areas.
Communicate and collaborate
Consumer products companies play a vital role in supporting society through crises such as the Covid-19 outbreak. It is essential that senior executives maintain open lines of communication with the authorities in their markets.
That means staying up to speed on the latest government thinking about curbing panic-buying and shortages, or about potential lockdown areas that could be the next to face logistical constraints. These efforts can create goodwill when products are available against the odds. However, the reputational harm can be severe if companies do not follow the precautions and health guidelines recommended by the authorities.
All employees—from the most senior to the most junior—want to hear important internal news from their leaders first, rather than through hearsay. Communication designed to reassure the workforce on safety should deal in specifics rather than generalities, highlighting concrete measures taken to protect personnel. Employees want to feel that the company empathizes with the personal cost of the pandemic.
Look beyond business
The simplest and most common action is to donate to hospitals and medical institutions. Brands can go one step further by leveraging their resources and capabilities to provide tangible disaster support and relief. Consumer goods companies can be a highly visible, branded face of the crisis response; a positive contribution can create deep loyalty and brand equity over the long term.
Path to recovery
At moments of such strain, it can be hard to keep up with all the immediate challenges, let alone maintain focus on the medium and long term. Yet, leadership teams in consumer products know that they cannot afford to lose sight of their broader goals during the turbulence created by Covid-19. They need to plan for the eventual recovery.
You’ll gradually wind down resources and teams dedicated to managing the crisis, but only after conducting a postmortem on lessons learned. Then, codify your approach for the next, similar crisis and ensure that an emergency response team can be activated quickly. Recovery also means resetting and restarting the plan for 2020 with new objectives, budgets, forecasts and operational plans.