The business must go on: get contingency planning right

By Goh Puay Guan

SINGAPORE — The novel coronavirus is spreading even as governments tried to contain it through travel restrictions and quarantine procedures.

The global death toll from the coronavirus outbreak reached nearly 1,400 and the head of the World Health Organization warned about the potential for more cases beyond China.

Businesses cannot wait. They need to consider how their sales and operations may be disrupted by the virus outbreak, and activate business continuity plans. Here are some factors companies should consider to create a system of prevention and recovery from potential threats and risks including natural disasters.

Product availability and alternative sourcing

Companies need to look at their sources, and whether their suppliers will be affected by work stoppages. The story is real for Hyundai Motors and Kia Motors, which suspended production at plants in South Korea, because of disruptions in the supply of parts from China. Companies need to work out terms and conditions with alternative suppliers, even to start secondary sourcing from them in order to cultivate commercial relationships in advance.

The location matters. If these suppliers are in the same vicinity, the risk remains. For example, massive floods in Bangkok in 2011 crippled suppliers for the automotive and disk drive industries, which were generally clustered around the same areas. This led the industries to suffer large losses in production and sales.

Alternative operational sites

Alternative manufacturing or warehouse sites can also act as buffer. Companies have become much more efficient in their supply chains over the years. It is great in normal times that stock levels are minimised. It is not so great to have minimal stock levels during a period of extended disruption. Thus, companies need to evaluate the amount of raw materials or finished goods required to last through this period.

Stocking up requires a greater storage capacity, or alternative storage sites. As fewer shoppers go out, unsold inventories may pile up, increasing warehouse demand as well. Companies have to factor in demand slowdown and adjust production accordingly.

As for companies that sell goods with a short shelf life, a greater risk stands in front of them. Unsold or expired products may lead to great losses for the companies, thus affecting cash flow management. This may involve negotiation with banks and suppliers to extend payment terms.

Prioritise risks

Putting in place contingency plans would cost money and effort. It would be impossible to back up all operations, so the key priorities and risks need to be identified in advance. It is not a game of musical chairs where the first risk that pops up gets attended to first.

Management needs to consider the strategic accounts, contractual obligations, pricing margins, the likelihood of occurrence of the risks and their impact, before deciding on the mitigation plans. For one, ComfortDelGro has said that they have stockpiled masks and disinfectants for their drivers and staff.

Forming business continuity teams

Teamwork is important, all the more in a cross-functional business continuity team. This would facilitate central coordination and regular feedback of on-ground information to and from different operating units, negotiation with customers and suppliers on contractual obligations, as well as the planning of new (and possibly delayed) delivery schedules. This central team needs to take charge of relevant communication to staff and customers. It would also be responsible for putting in place alternative suppliers and sites, and executing contingency plans in the event of the disruption.

CapitaLand has, for example, announced that it put in place a special task force to coordinate operations in China and in other markets, among its other contingency measures.

Communication with customers and suppliers would also need to be transparent. Customers are likely to be understanding if orders are being delayed provided businesses are upfront and open with them. External partners need information so they can make plan accordingly.

Another issue for consideration is staff mobility for business continuity. Since the SARS period, companies have become much more connected and Internet-enabled. The widespread availability of cloud computing, remote access to company systems through VPN, and video conferencing via apps such Skype or Zoom should make remote communication and work much easier than in the past. Other measures include enabling staff to work from home or to re-assign tasks.

Be Prepared

Companies need to set up their plans and alternatives in advance. When a crisis hits, it may be difficult to find options while trying to deal with the ongoing operations disruption. They may also find that the cost of alternatives will be very costly as they are purchasing at the last minute, or even face some form of predatory pricing from the suppliers as well.

At the end of the day, it is also about understanding the potential gaps and how these can be plugged. Mitigation plans are like disinfectants. They do not promise to resolve the virus outbreak. But they can reduce the harmful impact on the business. In addition, these plans will provide a clear operating roadmap for management and staff during this period.

Goh Puay Guan is an associate professor in the National University of Singapore (NUS) Business School’s Analytics & Operations department. The opinions expressed are those of the writer and do not represent the views and opinions of NUS.

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