[updated 10 March 2020]
The Coronavirus (COVID-19) that originally kept China hostage in the first months of 2020 has spread across the globe. With it comes great costs – for the people who got it and the people around them, for public life in as a whole and for every business that works with China in one way or another, and increasingly with other countries as well.
There will be a profound impact on supply chains across industries, in China and outside.
While many corporates have dedicated teams and risk management departments who are experienced in dealing with supply chain disruptions, for many e-Commerce businesses this kind of disruption is a new event that many are unprepared for.
However, there are steps you can take to limit the impact of the Coronavirus on your e-Commerce business.
Short term actions for e-Commerce businesses during the Corona Outbreak
Presented with the situation, there are a number of steps you can take to limit the impact of the virus spreading on your business. Some of the key steps focus on securing your supply chain, but don’t overlook the impact on other parts of your business – it may impact the behavior of your customers.
Monitor Situation on The Ground
the situation on the ground with your local staff and/or suppliers. Make sure you get a picture of what is going on through reliable news sources and directly from your suppliers and your team on the ground.
Manage the Relation with Your Suppliers
outbreak may have a substantial impact on their business with a range of consequences. Keeping a good relationship with your supplier in these hard times helps to keep information flowing and therefore limits your risk of unexpected surprises.
relationships matter, being on their side in these times can strengthen your relationship with them.
Get Update on The Regulations (nationally and locally around your suppliers)
relations are helpful, but you need to verify what you are being told. Check the national and local regulations. For example, the official Chinese New Year holiday has been extended with 2 days, keeping your suppliers’ factories shut for two more days. In some cities or regions, the holiday may be extended even more.
the restrictions on movements – if there are restrictions, many of the workers may not be able to return to work, limiting the capacity of the factory.
is key to manage your own expectations and to limit the chance of being the last in row.
Emphasize Quality Control
has experienced or heard of horror stories with Chinese suppliers. Chinese New Year is when they pay the bonuses to their workers, of which a number of them will not return to the factory after New Year. I expect this rate will be higher this year due to the Corona outbreak. That means your supplier is working with a backlog in production due to the extended holiday and fewer staff. Some suppliers will resort to cutting corners on quality to cope with those circumstances, hence your QC before shipment is even more critical than usual.
Other Short-Term Measures
Ramp Up Your Inventory
friends at Easy China Warehouse expect significant delays in the ramp of manufacturing after Chinese New Year. So, contact your suppliers to release orders early. If possible, buy a bigger quantity than usual, as it is not clear when the supply chain will be fully restored.
Manage Your Sales Run Rate
on probable delays in shipments and inventory, you want to safeguard your total margin and your Amazon rankings. Check your current sales velocity and your inventory levels, as well as anticipated delays. What run rate can you handle without running out of stock? Adjust promotions and pricing as needed to slow down your sales, maximize your margin on the current inventory and ensure you don’t run out of inventory.
Customer Support Team FAQ
are worried about the Coronavirus, but so are your customers. Especially with an outsourced (and overseas) customer support team, you need to prepare them for the questions your customers may ask – from shipment delays to the location of your factory and the safety of opening the packaging.
Action Plan: What If Corona Spreads to Your Market
Initially, the cases were concentrated in China, with a couple of handfuls of cases in many other countries. However as of the date of this update, the outbreak seems to be under control in China but is still rapidly spreading in other countries.
Most companies will be affected by changes in demand in their home market. In general, I expect there is even more push to online purchases as people fear going out on the street. But the buying behavior of your customers may change – can they easily switch to non-Chinese products? Will demand surge, as you’re in a health niche? Or will it slump as you’re in the travel niche?
Your action plan should include at the very least several scenarios and your updated sales, inventory and cash flow forecast.
Action Plan: Your Supplier Remains Closed (For 1-3 months Or Permanently)
export-oriented factories were already under pressure due to the trade war, some factories may not survive this outbreak. The best moment to start thinking about your options in that scenario was yesterday, with today being the second-best time. What and how will you communicate with your customers? Can you find alternative suppliers, and on what time frame? How to secure capacity from them? What is the price difference, and do you have to absorb this, or can you pass this on to your customers?
Depending on how much your business will be impacted by the outbreak, you may also want to revise your 2020 budget and targets. If the impact is big, you need to adjust your forecast and target. There is no use in pursuing targets that have become all but impossible to achieve, and they may risk losing momentum and commitment of your team, as they won’t feel the targets are achievable anymore.
Action Plan: Economic Recession Impacts Demand
Since last year, there is talk about the next recession being around the corner. It was never the question if there will be a next recession or depression, but when. With several countries in partial lock down, stock markets crashing and public life significantly slowing down, there is a significant risk this outbreak is the trigger that pushes the world economy or your home market into a recession.
Although this will have a profound impact on most businesses, this is not a reason to panic. Take a step back and consider how a recession would impact your business. Will your customers stop buying? Switch to cheaper alternatives? Or are you in a market that may actually benefit from a downturn? During the last down turn, super markets saw an uptick in the sale of luxury goods during the holidays, as consumers did not want to spend big money going out for dinner, and chose to save money by making the festive meals at home – costing the restaurant business a big chunk of revenue, but adding growth to the supermarkets.
It is critical to understand and predict how your (potential) customers and your competitors will respond to the economic downturn. For some, it may prove a golden opportunity to pick up market share, build customer loyalty and lay foundations for future growth. For others, demand may plummet and swift action on cost control and marketing changes may be needed. There is no golden rule, other than understand your customers.
Long term Risk Management for e-Commerce businesses
Many businesses were caught off guard by the global public health emergency and are now struggling with the short-term actions above to limit the impact.
Although these situations are unpredictable and unavoidable, you as a business owner can and should take steps to prepare for these events.
This is as good a time and as big of a warning you will get to step up your risk management.
So, what steps can you take that have a long-term impact on your business?
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Diversify Supply Base
Coronavirus is the model example of the risks of relying on a sole supplier. This is as clear of a signal you will get to start looking for additional suppliers to limit your exposure to one supplier. This will cause extra overhead and relationship management, but may also result in a lower price and/or higher quality as your leverage increases.
Regular Risk Assessment
This global health emergency should serve as a reminder that there are unexpected risks looming on the horizon. It’s important to be aware of all the risks that can have an impact on your business.
I recommend working with a 2×2 impact vs frequency matrix to map all the risks and identify priorities.
This covers internal risks as well as external risks. Examples besides the Corona outbreak could be your supplier going bankrupt, Amazon suspending your listing, a ransomware attack or a fraudulent employee.
Doing this on a regular basis is a very useful habit to regularly (I suggest quarterly) check in on these mapped risks – did new risks emerge? Did the impact or the frequency change?
Identifying the risks is step one. But even more important are the questions: what can you do to prevent them and what can do you when they materialize? When you set up your quarterly risk assessment, also run through a number of scenarios:
If this risk materializes, what are the consequences? Look at your suppliers, customers, staff and any other dimension that would get impacted. Are they just inconvenient, or do they threaten the existence of your business?
Then, focus on what you can control: what steps can you take to limit the consequences? What can you do now, and what can you later on? What are the costs? Are they worth it?
Use the momentum of this crisis to make your business more resilient in the long term. And it is not a “bad news only” situation. Your competitors are going through the same motions – so this turbulent market may also provide unexpected opportunities.
As Churchill said, never let a good crisis go to waste.
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