Adapt or Perish
The “New Normal” - What it might look like and how we should prepare
Dear Clients and Connections,
Like you, we at On Tap Consulting have been adjusting to the pandemic. As we are located all over the world, we are seeing global differences and similarities. Each of us has had to adjust our way of working, and we have considered how we help our clients. We don’t get to choose our time in history but we do get to choose how we show up. With that in mind, On Tap Consulting is reaching out to our clients and connections with tips and tools based on what we have learned and what we know from our collective experiences of riding through supply chain and business disruption. We hope to hear from you on your experiences, successes and challenges; we would like to learn and share with each of you in some way as we all pull out of this current state into what is sure to be a “new normal”.
Current State
Logistics: Ocean freight costs are increasing because freight companies have taken 20 – 30% of capacity off-line. This unprecedented move preserves rates but it also costs companies millions of dollars and thus is not sustainable. Air prices are now at 3X what they were just a few months ago. The root cause is a shortage in freight capacity. Passenger flights accounted for 40% of capacity prior to the pandemic and now is a tiny fraction. Freight companies have taken over passenger planes to ship personal protection equipment (PPE) but the capacity for non-PPE has dropped over 40%.
Contract Manufacturers: Chinese, Taiwanese and South Korean manufacturers are back at 90% or greater of their previous levels. They have the capacity, but now the issue is demand. With the US and Europe in a shelter-in-place mode, demand has dropped precipitously. The World Trade Organization is predicting a drop in trade volume of between 13% and 32% in Q3. Some CM’s will not weather this drop and will close their doors. US manufacturing has dropped output in the US faster in the last month than any month since 1946. Unemployment is the largest number we have ever had. Manufacturing companies are still open for “essential services” which are typically interpreted as medical devices/supplies, food and government supplies. European manufacturers are similarly impacted. Some have completely shut down and others are working to build essential supplies similar to the US.
Supply Chain: Inventory is tightening worldwide. Some components are hard to find and lead times are extending. The biggest challenge is that this is unpredictable. Inventory can be there one day and gone the next. China suppliers seem to be fully operational again but, in some cases, there is a gap caused by the downtime in China during the first quarter. Some suppliers won’t make it.
Expectations for the next 12 months
The consensus of the experts is that we will be in a state of “partial open” until there is a widely available vaccine.
As California’s Governor Newsom described it, “There's no light switch here. It's more like a dimmer.” We slowly open businesses up and we will need to react to surges in the virus.
Businesses will put safety practices in place including testing, masks and social distancing.
Even with a gradual opening, people will be reluctant to engage with others in person, especially if they feel that they are in a vulnerable category. This could imply more work from home, less traveling, fewer meetings, less in-store shopping.
If more stability is sensed and if people are employed, they will be buying items that make their home experiences easier and more convenient. Products that aid could increase in demand: monitoring of devices, environments, etc.; remote healthcare; home fitness; communication aids.
Expectations for the "New Normal"
Even after a vaccine is available many people will be reluctant to travel.
There will be a greater reliance on cloud-based tools, video conferencing, remote work.
In-person meetings will be small in size and will have specific purposes.
Large conferences will not take place for the foreseeable future.
Marketing impact – Given the above, what does your messaging look like?
Sales impact – Given the above, how do you get that message out?
Tips and Tools
Assume longer lead times and secure inventory early.
Deepen your supply chain partnerships.
Assess your CM: financial, operational status, protection protocols for employees.
Do a full map of your supply chain down to the component level, and review the health or robustness of your supply chain (at risk suppliers, single points of failure, etc.).
Evaluate your approach to NPI (New Product Introduction). Consider getting builds done locally and use a virtual presence to ramp remotely.
Reduce costs and conserve cash: Look at logistics, hiring, cash flow, channel strategy, marketing spend.
Pivot or modify your business plans to take advantage of an increased demand in home work, play, monitoring, services.
On Tap Consulting is available to help you with your plans to weather this Covid storm. In times like these, experience matters. Our team of experts have been through multiple supply and demand disruptions and while this one has no precedence, there are lessons we’ve learned and that are applicable. Let us help you in this “new normal” environment. Contact us for a free consultation.