2020 has been a year of resilience, and adaptation. From working virtually to managing teams remotely, with customers and suppliers trying to work out the best strategy/solution to stay afloat, businesses have adjusted to the new normal.
Cumulative efforts by various stakeholders, investors & government encouraged businesses to adapt and adjust to different ways of working- alternative methods for deployment of resources, cost reduction mechanisms, bridge financing and furlough schemes were some of the key aspects that were worked upon.
Now that 2020 is over, and with the vaccination drive underway, Brexit completed, and the Trump era coming to an end there is a growing role for countries like India, China and much of those in Latin America:
We endeavour to share a few thoughts on some of these questions as we navigate into the “new era” of this decade.
Consumer behaviours
Consumer behaviours have undergone a paradigm shift through the multiple covid-19 lockdowns. Differing customer types have adapted to reduced salaries through furlough which have been mitigated by reduced travel and leisure costs. Other segments have expanded simply by greater savings resulting in a huge increase in the savings ratio.
This gives rise to new consumption models and behavioural patterns. In some parts of the economy, there is huge pent-up demand - such as travel. However, in general, consumers will not respond to the same old pre-covid formula as they have learned that “less is more”, a mantra which they have adopted as a credo. Businesses will require products that can create more excitement for these consumers in order to allure them to spend. Alternatively, consumers will shift their values to a new reality and lifestyle, where some goods and services became less popular than others, following a year of adaptation to more remote living and working.
Question: What are your strategies to excite and create buzz around your customers?
Supply Chain Process
COVID-19 revealed the weaknesses of globalized manufacturing systems and most companies have had to re-design their supply chain processes to keep afloat.
Alongside covid-19, trade tariff wars between the US & China, and uncertainty over Brexit further added to the disruptions last year. However, many businesses adjusted by focusing on localised procurement models, and away from just- in- time logistics channels, towards building inventories, which brought with them associated working capital and investment challenges.
Automation and technology will continue to remain key in managing supply chain processes, moving from local to global procurement models and developing AI backed systems to create an agile, robust, and innovative supply chain model
Question: Have you reviewed your supply chain holistically against these new models?
Tariffs and Margins
With Britain now separated from the EU, global sourcing creates an opportunity for margin gain or indeed margin loss for those not closely watching customs, tariff levels, logistics and warehousing costs. Astute businesses will be balancing the need to develop local procurement in parallel with taking advantages of global sourcing, now perhaps more cognisant of the impact on their business of supply disruptions.
Lightning tariffs could be applied in the event of a perception that level playing fields were not being applied fairly by either the UK/EU. Businesses have to respond now to the impact of such tariffs that may substantially erode margins.
Question: Have you reassessed you sourcing strategies to take into account this new era with margin and range development opportunities?
Ethical Sourcing and ESG
Regions like India, Latin America and Africa may gain a stronger role enabling the UK to reduce dependency on the conventional markets of China & EU. This also provide a rich opportunity for companies to meet their shareholders’ ESG requirements by supporting and influencing the growth of suppliers in these regions where e.g. the Body Shop has since 1987 led the way.
Question: Will global sourcing form part of your ESG strategy?
Managing Working Capital
The Covid-19 pandemic had raised significant working capital challenges and uncertainties for organizations. Supply chain disruptions coupled with changing consumer demands and stretched collection of receivables, have added to the challenges. Suppliers and buyers have struggled with liquidity and cash has yet again became king. Working capital management has been one of the key focus areas for businesses last year- with managing the liquidity, inventory levels, and optimisation of available resources becoming vital. Bridging these short -term liquidity gaps, most businesses turned to government schemes and bond markets.
With the short-term schemes about to end, businesses need to work towards developing a model to manage their cash levels on both a short- and long-term basis. Prudent inventory management, improved payables – by paying vendors on time – better receivables periods by having robust collection mechanisms in place and effectively managing the debtor’s days are key areas of focus. Alternative diversified financing could also enable businesses to maintain adequate cash flow.
Question: We have all adjusted to downward demand and the impact on working capital, but have you assessed the impact of a post covid ramp up in revenue and the working capital requirements needed by buyers and suppliers to respond to increased demand?
Revenue /Growth Focus
While during 2020, most businesses focused on pivoting their available resources, working on the alternate and optimal strategies to stay afloat, 2021 will be the year when they start capitalising on newly adopted methods and leverage these as a path to growth. Revenue and margin growth will be crucial, as will debt repayment. Technology, automation, real-time responses, forecasting models, inventory management, better supply chain processes and diversified finance models will be key drivers pushing businesses on the path to growth.
Question: Have you reviewed your Direct Product Profitability (DPP) models to maximise margin as well as revenue?
Workforce/People Orientation
Last year led to adoption of newer ways of working. Virtual meetings, long working hours from home drove businesses. It clearly showed that businesses can run with employees operating anytime and anywhere. However, cost cutting measures like salary/bonus cuts, layoffs, furlough schemes created lower morale.
While employee health and well-being will become one of the topmost priorities, proactive communication, talent retention, attracting new workforce, low-cost manpower are some of the areas that organizations will be focussing upon this year.
Creating a new flexible working framework encompassing the things that people have experienced through lockdowns such as less travel, family life balanced against different remuneration structures may be a win-win for both business and colleagues. For sure the alternate position of dragging people back to old ways of working will not create positivity for business or colleagues
Question: Have you considered turning the human side of covid into a positive for your organisation and colleagues with different KPI’s, workplace work patterns and locations?
2020 showed that digital business models were the game changers in every aspect of the organization. From inventory to working capital, from processes to human resources, technology was the driving force that enabled businesses to remain stable and buoyant. Therefore, technology would be one of the key driving forces as we move forward. Economic uncertainty will continue in 2021 and businesses will look at new ways of working, new ways of adapting to change and new ways of driving their organizations.
Fintechs like Crossflow, whose platform is backed by cutting edge technology, bridge the working capital gap for corporates, effectively and efficiently allowing businesses to adapt and grow with the testing times. All the above challenges and changes in the business operations and orientation, will need to be supported with flexible working capital, unlocking business goals, as organizations navigate into a whole new world of doing business this new year.
Reach out to us to find out more!
Ekta Mody is Head of Consulting at Crossflow. She has extensive experience in the field of Corporate Treasury and Risk Management within large global corporates. With a forte in cross-border fund raising & structured lending, Ekta is proficient at identifying risks and implementing solutions related to funding programmes. She brings her experience to Crossflow as a key leader in the global Corporate Engagement team.