COVID-19 – The Squirrel and the Grasshopper

April, 2020

By: Todd Cooper

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Back in late January I provided my customers with some early advice to start to shore up the critical aspects of their supply chain and prepare themselves and their customers for potential disruptions. That was in late January, no crystal ball, just common sense. The response I got was evenly distributed from those thinking I was barking mad (grasshoppers) to the others who immediately started to analyse their exposure and put in place mitigations strategies (squirrels).

From a procurement and supply chain perspective here are 10 points that I recommended – they are all still even more relevant:

1. Ensure you analyse your supply chain and understand where you are most exposed, this often includes where you are reliant on components from Asia/China, and more recently Europe. This will give you a heat map showing where to start from.

2. Knowing where the points of risk sit within your supply chain, you can plan for worst case scenarios. These may include a shift from JIT supply to carrying emergency supplies of stock, introducing, or at the least identifying, alternative suppliers. Be strategic and avoid panic buying.

3. Engage with your key suppliers. Remember that when push comes to shove good relationships will count for a lot!

4. Engage with your key customers. Set your customers up to survive by providing robust and continuous disclosure of your supply chain risks and mitigations strategies – often an important aspect in meeting force majeure obligations. By working a ‘no surprises’ policy you will generate a huge amount of goodwill and trust.

5. Engage with your shipping/logistics company and understand your exposure around existing incoterms, where obligations currently sit, and whether you still have an appetite for that level of risk.

6. See your bank manager. This is a good time to buy your bank manager a coffee and get an extension on that revolving line of credit, cashflow will be critical. Shouldn’t cost you much and might save you your business.

7. See your insurance broker. You hopefully have business interruption insurance. Perhaps this is a good time to also buy your broker a coffee and get a better understanding of your level of exposure to business interruption, and how (and if) your insurance policy covers you in such an event. This might also come as relief to your staff.

8. Review your force majeure clauses, they are highly likely to include pandemic or epidemic events, this may offer you some relief. I have reviewed several force majeure clauses recently and believe me when I say no two are seldom the same! Remember for force majeure to apply, the event must be largely unforeseeable and outside of your reasonable level of control (unavoidable). A pandemic is a “slow moving hurricane”, so be very wary in signing new agreements, as any newly-entered force majeure clause is likely to exclude COVID-19 as it is now a foreseeable event, and as a result you will have little recourse should you be unable to meet contractual obligations.

9. Visit your Governance structure for key supplier, ensure risk registers are updated and business continuity and contingency plans are fit for purpose covering the usual. Some pandemic plans as part of BCP have not been dusted off since SARs some 17 years ago.

10. If you deal with government departments, it is a very good time to consider re-negotiating payment terms. Fast payments and potentially advances may ensure continuity of supply. In unprecedented times like this, they have an obligation to work with you not against you.

I hope that you find some of these points useful as you face the challenges of business in this dramatically changing period.

As always, doing business on a ‘no surprises’ basis, working openly and consistently, engaging in your supply and customer relationships with integrity and fairness, holding all your business relationships to the same expectation, and always keeping up due diligence in your supply chain, will all bring loyal long-term responses in return – and could make all the difference when the chips are down – which could be very soon!

Tod Cooper is an independent commercial and procurement consultant, he is also a board director of Transparency International New Zealand (TINZ), and holds delegated authority for procurement and whistleblowing. Tod is happy to answer questions from EMA members.

Transparency International New Zealand (TINZ) works for integrity and prevention of corruption in New Zealand commerce and government, we advocate the values to be gained by trust and integrity in business for improved efficiency, higher profits and the betterment of the people and economy of New Zealand.

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