Supply Chain Standouts: May 29

Posted on May 29, 2020April 13, 2021 by interos-blogger

With so much talk about the end of globalization and rising tariff and trade barriers, it’s not surprising that some are even predicting the demise of global supply chains. Global supply chains are not disappearing. In fact, there are plenty of signs of greater cooperation starting to emerge. For this week’s shout-outs, we are highlighting new and emerging agreements that are helping build greater supply chain resiliency and foster international cooperation.

Within the United States, seven states (Connecticut, Delaware, Massachusetts, New Jersey, New York, Pennsylvania, and Rhode Island) in the northeast have formed a regional supply chain focused on facilitating access to medical equipment and coordinating economic reopening. In the northwest, California, Washington, and Oregon are similarly discussing supply chain coordination for medical materials, and have been joined by Colorado and Nevada, creating the Western States Pact.

These collaborative pacts in the United States are a microcosm of the cooperation occurring at the global level in the realm of ‘travel bubbles’. Just as lockdowns blocked the flow of goods and services across borders, these travel bubbles lift many of these restrictions. In the Baltics, Latvia, Lithuania, and Estonia lifted travel restrictions in mid-May. New Zealand and Australia similarly agreed on a trans-Tasman travel bubble between those two countries, setting the foundation for greater trade and a joint manufacturing strategy. Several Asian countries are currently exploring ways to join the trans-Tasman bubble or create their own as a key means to economic reopening. And the U.K. just announced plans to create a technology hub of suppliers among ten democracies to create alternative choices for 5G and other emerging technologies to foster greater supply chain resiliency and security.

Of course, these bubbles largely focus on the tourism industry and come with concerns of exclusionary restrictions. However, in the past global supply chains brought tourism; the causal arrow may be flipped now given the unprecedented impact of COVID-19. The movement of people could be the first step toward the greater movement of goods and help trade rebound and revitalize supply chains. For example, with the grounding of air lines due to lockdowns, air freight capacity was significantly diminished. Collaboration among localized logistics networks within these bubbles may be a stepping stone to greater global integration, as many airlines in Asia are already seeing much greater activity. In the retail industry, a shift to nearshoring and greater collaboration has been noted as a core first step to reviving the industry.

In short, while there is reason to be wary of rising economic nationalism, commercial collaboration and integration are re-emerging after months of disruption. Like Mark Twain, reports of the death of globalization have been greatly exaggerated. However, our supply chains and trade agreements are being restructured by the day and the globalization of tomorrow may look starkly different from its pre-COVID structure. Whatever comes next, global supply chains will continue to exist, but they likely will be complimented with regional and localized supply chains…and a much stronger emphasis on mutual collaboration.

Do you have a favorite story of supply chain innovation, community, and resilience? Be sure to share them with us on Twitter @InterosInc or on LinkedIn!

Changing Executive Perspectives on Supply Chain Risk with Bob Brese

Posted on May 26, 2020April 13, 2021 by Harris Allgeier

Episode 6: Changing Executive Perspectives on Supply Chain Risk

COVID-19 has changed a lot.

From the way that we do business, to what customers expect out of brands, to the way that brands interact with their customers.

The truth is, we’re never going back to the way things were in January, 2020 and businesses are already rethinking their unflinching commitment to completely global supply chains and considering alternative solutions.

But such changes are not without risk.

Our guest on the What Lies Beneath? podcast this week is Bob Brese, VP at Gartner and the former CIO of the Department of Energy, and he had a lot to say around the issue of supply chain risk from the executive level. He also spoke about:

Why he thinks there will be changes in regulatory scrutiny around supply chain risk
How he sees the executive response to supply chain risk changing as a result of COVID-19
Why COVID-19 is a major forcing function in business innovation

Listen & Subscribe!

To learn more, check out the podcast on Stitcher, Apple Podcasts, Google Play, Spotify, or wherever you listen to podcasts. If you like what you hear, please rate and review the show, or share it with a friend! New episodes air every other Tuesday.

To learn more about Interos, visit Interos.ai.

Supply Chain Standouts: May 22

Posted on May 22, 2020April 13, 2021 by interos-blogger

With The Last Dance wrapping up this week, sports enthusiasts are once again left trying to fill the sports gap in their lives. Despite a continued dearth of athletics activity, there are plenty of equipment suppliers doing good work off the field, transforming their businesses to help protect those on the frontlines against COVID-19 and their communities.

The leading Formula One team, Mercedes–AMG Petronas, worked with doctors to prototype continuous positive airway machines (CPAPs) that within ten days received regulatory approval. Several Formula One teams are similarly creating ventilators in the thousands.

Lacrosse and hockey mask manufacturers have transformed from protective sports gear manufacturers to making personal protective equipment (PPE) for healthcare workers. Bauer, which traditionally makes hockey skates, helmets, and face shields, is now producing medical face shields. Lacrosse equipment companies from across the country, including Pro Athletics in California and Cascade Maverik Lacrosse in New York, have similarly retrofitted their facilities to make face masks, scrubs, and sheets.

Footwear company, New Balance, has similarly pivoted to help address the massive shortage in face masks. As shoe production came to a halt in some factories in mid-March, they partnered with M.I.T. and quickly moved from a prototype to making 100,000 masks.

Not to be outdone by the land sport companies, the Professional Association of Diving Instructors has partnered with Rash’r to make face masks from recycled ocean plastic. They’re battling plastic pollution and the pandemic with one punch!

The safety of players and fans is also top of mind and sparking other forms of innovation and community-building. This week the NFL announced the ongoing protype testing of helmets that include face masks with surgical material. Professional sports leagues are also finding new ways to help fans show support for their home teams. Both the NHL and NFL are now selling team-branded face masks for fans, which may be required as athletes return to the fields and arenas.

With some time until professional, collegiate, and even recreational sports start back up, families have returned to age old favorites to pass their free time. Jigsaw puzzle makers and board game makers are struggling to keep up with the surging demand. Some of these board game companies are not only helping keep families and friends entertained, but they are contributing PPE as well. The West Georgia Cornhole company is crafting face shields for those on the frontlines, while keeping up with the spiking demand in cornhole. They went from making 200 corn hole boards a month to 200 sets a week, hiring a few more employees, and supporting workers at hospitals across Georgia.

Do you have a favorite story of supply chain innovation, community, and resilience? Be sure to share them with us on Twitter @InterosInc or on LinkedIn!

Indicators of Supply Chain Risk in the Era of Coronavirus: Governance

Posted on May 21, 2020April 13, 2021 by Andrea Little Limbago

This is the final part in a five-part series looking at global supply chain risk factors, COVID-19, and economic reopening.

As just-in-time production and optimization dominated global supply chain strategies, strong corporate governance across the supply chain often was viewed as a ‘nice to have’ rather than a business imperative. This has changed over the last twenty years. In 2000, the Global Reporting Initiative was launched, expanding the notion of corporate governance to include sustainability standards and reflecting the growing concerns over environmental and social impact. Today, over 80% of the world’s largest corporations use these standards, likely guided by emerging evidence that doing good is also good business. In fact, COVID-19 is sparking renewed interest and concerns over governance-related risks due to greater scrutiny over how companies handle disruption.

Corporate governance refers to the set of rules, practices, and policies that not only guide corporate decisions, but are used to measure a company and hold them accountable. Environmental and social considerations combined with corporate governance (ESG) inform the ESG-related risk and accountability frameworks. This includes partnerships and the practices across the enterprise global supply chain. Companies commitment to ESG can impact their integrity and reputation through supporting (or hurting) sustainable development where they operate. Even before the pandemic, ESG-related risks had become a top risk priority due to rising concerns over climate change, unethical sourcing, corporate scandals, and compliance failures.

ESG and Resiliency

By integrating ESG risk into corporate strategies, enterprises are better able to anticipate regulatory actions or disruptions, which have a direct impact on a company’s financial health. As the graph below demonstrates, companies with stronger ESG metrics performed better for investors than those that did not. This has continued during the pandemic, where ESG stocks have fared better than their counterparts and proven more resilient to the significant public health and economic disruptions. The scope of sustainability continues to expand to include the ability to withstand external shocks. While ESG tends to focus on limiting companies’ environmental footprint, promoting employee welfare, and fostering robust governance structures; supply chain considerations play an increasingly large role in the risk calculus.

By focusing on sustainability, companies are often more resilient to significant shocks. Companies that focus on environmental awareness, ethical behavior, and sound corporate governance are better positioned to mitigate risk and avoid many of the issues detailed in the following section. In fact, the pandemic is reinforcing the need for resiliency through an ESG lens. For forward-leaning organizations, the pandemic will accelerate the growing emphasis on ESG-risk, as well as the need to optimize on longer-term resiliency instead of shorter-term performance. But with strong corporate governance, enterprises can achieve both.

Bad Governance, Bad Outcomes

Good corporate governance creates a transparent set of rules, controls, and accountability, which in turn foster corporate resiliency. Conversely, bad corporate governance not only impacts a company’s reputation, but it fosters distrust and negatively impacts their bottom line. According to one survey, ESG-related risks eliminated $5 billion off the value of large US companies. This included fines for sexual harassment, accounting scandals, and anti-competitive practices. As one analyst noted, ESG-related metrics are a signal of future earnings risk and volatility.

Supply chains are not immune from this volatility. From ethical sourcing concerns to forced labor to unscrupulous founders, as ESG-risks rise, corporate resilience and profitability often drop, leading to disruptions across supply chains, and reputational damage to those linked to the bad governance. COVID-19 continues to expose the necessity for full visibility across the entire supply chain, as ESG compliance is very low across sub-tiers of supply chains, and regulatory action shows little sign of subsiding.

Looking ahead

Many have questioned the necessity and feasibility of prioritizing ESG during such an unprecedented economic downturn. Based on the economic performance and resilience of those companies with strong ESG practices, the better question may be whether they can afford not to.

Many companies are stepping up to do their part during this crisis: Repurposing production to PPE, providing WiFi for hospitals, and funding research, effectively expanding the notion of corporate responsibility. Prior to the pandemic the ‘E’ of ESG garnered most of the attention due to the significant and growing impact of climate change. “Before it was one dimensional . . . focused on climate. [But] this current crisis has caused that to evolve to the societal aspect of the role of corporations,” explains Bernard Looney, chief executive of BP.

The pandemic has left companies across the globe reassessing partnerships and risk strategies, with a growing urgency to build back better. That “better” includes better visibility and prioritization on ESG-risk across their supply chain ecosystem. As the pandemic has starkly exposed, companies with strong corporate governance and robust business practices are better able to handle this shock, and future shocks as well. The COVID-19 crisis has highlighted the necessity for sustainable and diverse supply chains, with visibility across all tiers.

The Interos platform monitors operational risk to assess its impact on extended enterprise supply chains. We are committed to continuing to monitor COVID-19 -driven upheaval and providing insight for businesses searching for the path to economic recovery and adapting to the “new normal.” The next piece in this series will focus on the governance disruptions to supply chains, and how COVID-19 is impacting these risks.

To learn more about how we capture operational risks to your supply chain, visit interosai.kinsta.cloud or check out our latest whitepaper Agile or Fragile: 5 Steps to Achieve Supply Chain Resilience in a Post-COVID World.

Dr. Andrea Little Limbago is a computational social scientist specializing in the intersection of technology, national security, and society. As the Vice President of Research and Analysis at Interos, Andrea leads the company’s research and analytic work regarding global supply chain risk with a focus on governance, cyber, economic, and geopolitical factors. She also oversees community engagement and research partnerships with universities and think tanks and is a frequent contributor to program committees and mentorship and career coaching programs. She has presented extensively at a range of academic, government, and industry conferences such as RSA, SOCOM’s Global Synch, BSidesLV, SXSW, and Enigma. Her writing has been featured in numerous outlets, including Politico, the Hill, Business Insider, War on the Rocks, and Forbes. Andrea is also a Senior Fellow and Program Director for the Cyber and Emerging Technologies Law and Policy Program at the National Security Institute at George Mason and a Fellow at the Atlantic Council’s GeoTech Center. She is an industry advisory board member for the data science program at George Washington University, and is a board member for the Washington, DC chapter of Women in Security and Privacy (WISP). She previously was the Chief Social Scientist at Virtru and Endgame. Prior to that, Andrea taught in academia and was a technical lead at the Joint Warfare Analysis Center, where she earned the Command’s top award for technical excellence. Andrea earned a PhD in Political Science from the University of Colorado at Boulder and a BA from Bowdoin College.

Coronavirus Continues to Destabilize the Food Supply Chain

Posted on May 19, 2020April 13, 2021 by Deverrick Holmes

“The food supply chain is breaking.” John Tyson, chairman of Tyson Foods, warned in a full-page ad in The New York Times. America, and the world at large, is facing a unique challenge as Covid-19 spreads across the globe causing major disruptions in the global food supply chain. The problems facing America’s food supply chain specifically, are unprecedented, as it is neither a supply nor demand side problem. Demand is at an all-time high, with consumers flocking to grocery stores, while farmers who supply unprocessed food contend with a surplus they can’t get rid of. Local grocery stores have empty shelves, while farmers euthanize millions of chickens or give away millions of potatoes. The disconnect lies within America’s food supply chain, which relies on a complex web of farmers, processors, and distributors to bring food to your table. Like other industries during this pandemic, the disruptions highlight supply chain fragility and the necessity for greater agility and visibility across this complex web to withstand such significant public health and operational disruptions.

Major Disruptions from Farm to Table

Large grocers and food retailers were forced to respond to an unprecedented public health lockdown, with knock-on effects swiftly propagating across their supply chains. Wendy’s was forced to remove burgers from the menu at hundreds of their fast-food locations. Kroger’s and Costco, two of the nation’s largest grocers are limiting the amount of fresh meat customers can purchase in one trip. And consumers are forced to grapple with the sharpest price hike for food in 50 years.

State-by-state economic closures were only the beginning of the impact of COVID-19 on the food industry. Thousands of workers at meat processing facilities have tested positive for COVID-19, forcing some of America’s largest meat distributors to limit or entirely shut down facilities to ensure workforce safety. The drop in production capability has created a bottleneck in the supply chain and has driven meat production down 40%, even as supermarket sales for meat has increased by 40%.

The above visualization from the Interos Platform shows major meatpacking facilities (white circles) plotted on a trend map of COVID-19 cases. Darker red counties have a greater increase in COVID-19 cases compared to green counties. The map shows a correlation between meat packing industry locations and counties with a greater increase of COVID-19 cases.

A Similar Story of Surpluses and Shortages across the U.S.

Currently, there are 41 plants nationwide that are either operating with limited capacity or shut down completely. Most of the affected facilities are clustered in the Midwest (Nebraska, Kansas, Missouri, Iowa, and Minnesota). In Iowa, which has the single highest number of affected facilities (6), Governor Kim Reynolds is easing social distancing restrictions across the state. Even though the plants themselves are considered essential and never faced any restrictions, data gathered by Last week over 1,000 workers tested positive at a Tysons plant in Waterloo, Iowa just two days after reopening from a two week closure.

In Texas, which has only seen one affected facility so far, Covid-19 cases are clustered around large beef and chicken processing facilities across the state. Texas ranks towards the bottom in the nation in Covid-19 tests per capita, making it difficult to accurately assess the extent to which the virus has infiltrated meat processing facilities. However, if facilities in Texas mirror trends elsewhere, they may be forced to reduce their workforce or shut down completely.

A Global Phenomenon

The challenge facing the food supply chain is not unique to the United States. The global food supply chain (which in 2019 saw $1.5 trillion of food shipped around the world), has grown increasingly complex over the past few decades. Food, much like every other consumer product is globally sourced. The system has become increasingly fragile and large-scale disruptions reverberate throughout the entirety of the supply chain. With COVID-19 wreaking havoc on everything from oil prices to global financial markets, there is a significant risk of a global food crisis due to a lack of supply. Some countries are beginning to restrict exports as their internal supply chains struggle to meet demand. If global food supply chains are unable to adjust, upwards of 265 million people face the prospect of acute hunger according to the U.N World Food Programme.

As this crisis unfolds, forward-leaning food producers are adopting the United Nations Sustainable Development Goals to combat poverty and create more resilient food production ecosystems and supply chains that can withstand the next global shock. In the near-term, some are stepping in to the food directly from farmers to support Feeding America and ensure the food reaches where it is needed most. At the same time, localized farmers and producers have stepped in to. We are on the precipice of significant changes across the entire food chain. These changes will not happen overnight, but the COVID-19 crisis has brought home the fragility of the food supply chain, encouraging globalized and local suppliers alike to do their part to nourish the world and protect communities.

To learn more about how you can protect your business from unexpected impacts from COVID-19, visit interosai.kinsta.cloud.

Announcing: Supply Chain Standouts!

Posted on May 15, 2020April 13, 2021 by interos-blogger

Times of great uncertainty and disruption can also give rise to great ingenuity, community, and resilience. With that in mind, we are introducing our “Supply Chain Standouts” series: a weekly shout out to some of our favorite production and supply stories from around the world.

In Estonia, local producer Nordic Group OÜ manufactured and shipped thousands of face masks and disinfectant to Spain and Italy. This Allied effort is part of NATO’s Euro-Atlantic Response Coordination Centre (EADRCC) and highlights the coordination and cooperation of the Allies in times of crisis.

Sticking with the disinfectant theme, across the United States local wineries, breweries, and distilleries have quickly altered their production schedule to create sanitizer and support those on the front lines of their communities. From Maine to Texas to California, these companies are turning sugar and alcohol into hand sanitizer. A state-by-state list and map are available if you want to recognize your local business.

Finally, the coronavirus continues to wreak havoc on the food supply chain. Many food suppliers are unable to sell to their regular buyers as schools, hotels, production facilities, and restaurants have closed. Publix recently announced a plan to buy the milk and produce that farmers would otherwise be forced to dump, and donating the food to Feeding America, which directly provides the food to those in need.

Do you have a favorite story of supply chain innovation, community, and resilience? Be sure to share them with us on Twitter @InterosInc or on LinkedIn!

Indicators of Supply Chain Risk in the Era of Coronavirus: Operations

Posted on May 14, 2020April 13, 2021 by Andrea Little Limbago

This is the fourth in a five-part series looking at global supply chain risk factors, COVID-19, and economic reopening.

“Domestic and global companies are in the midst of rapid shifts in supply chain planning, operations, and inventory management to address coronavirus impacts,” noted Institute for Supply Management (ISM) CEO Thomas W. Derry. These significant shifts underscore the global impact of operational risk. Operational risk largely focuses on the risk of loss caused by people, processes, and systems or technologies, as well as a range of external events. While there may be some industry-specific risks, such as industry prices, a focus on labor, infrastructure, and regulations is a consistent component of most operational risk frameworks.

Operational risk may seem most impactful to industries reliant on heavy equipment and automated processes, such as manufacturing, oil and gas, and retail. However, because every company is now a tech company thanks to hyper-connectivity, automation, and artificial intelligence, every enterprise is susceptible to operational disruptions. For example, between 2011-2018, banks suffered $210 billion in operational risk losses, which helped inform the recent Basel III regulations for financial services operational risk. They aren’t alone. COVID-19 has created major operational risks across virtually every facet of every industry.

Labor

COVID-19 has brought labor safety back to front-page headlines. From the safety of the healthcare workers on the frontlines battling the pandemic to the farmworkers and truckers delivering our food, to the conditions of warehouse workers distributing goods across the globe, labor safety conditions and awareness is under tighter scrutiny. New regulations and guidelines pertaining to labor safety and hazardous conditions are starting to emerge and are likely to expand as both best practices and worst offenders continue to surface.

Occupational safety is just one of the many considerations for employment practices writ large, which inform operational risk. Many labor-specific factors fall under human resources, such as compensation or discrimination claims, while talent shortage is a top-level business risk. Talent shortages have historically been one of the top critical risks across many industries including energy, cyber, manufacturing, and aviation.

Finally, it’s important to highlight third-party labor risks, which may be indirect but can be equally disruptive to operations. “Labor is the backbone of any supply chain operator” and so labor disruptions of any kind – whether a strike, labor cuts, retention problems, or hazardous conditions – will propagate throughout the supply chain. While much attention has been paid to the effects of increasing automation within the global workforce, the human element remains a very influential determinant of supply chain resilience

Infrastructure

As COVID-19 has made extraordinarily clear, the ability to get things back up and running is core to resiliency. Aging infrastructure can be as impactful for the aviation industry as it is for companies dealing with legacy tech stacks that are no longer supported. IT failures are among the top operational risks; in some cases, they hinder electronic payments systems while in others these failures could block account access or cause website disruptions. With every company a tech company, manufacturers not only have to deal with equipment infrastructure, but their data exchanges, industrial internet of things, and cloud services are now critical, too.

Of course, physical infrastructure is also essential to operational resilience, including energy costs and access. Grounded flights, limited port access, and cargo theft can impact the flow of goods from a supplier. But physical infrastructure extends beyond that, to include physical facilities, including warehouses and office space. The impacts of climate change, for instance, on these facilities should be part of any operational risk assessment and continuity of operations plan.

Regulations & Compliance

Regulations and compliance cover the safety, environmental, health, and quality considerations that also impact labor and infrastructure, but extend well beyond them as well. For instance, anti-money laundering (AML) and sanctions violations can reach into the billions, risking lives, ending careers, and ruining reputations. In the pharmaceutical industry, for instance, enterprises must stay on top of legal and regulatory changes and a range of liabilities that can emerge from products, technologies, and counterfeit drugs and global quality control.

While the claim that data is the new oil is now anachronistic, the need to protect data is only growing in urgency. As we discussed in the cyber risk post, cyber threats continue to evolve, the majority of which target intellectual property, personally identifiable information (PII), and other sensitive corporate data. To incentivize enterprises to elevate their security and privacy data protections, a range of data protection regulations continue to emerge. From the General Data Protection Regulation (GDPR) in Europe to Brazil’s General Data Protection Law (LGPD) to California’s Consumer Privacy Act (CCPA), enterprises risk significant fines for non-compliance to the patchwork of data protection and data localization laws across the globe; fines which could cause major business disruptions, while also presenting potential data compromises across their supply chain partners.

Looking Ahead

COVID-19 has introduced a wide range of operational disruptions, leading to vast shortages, shutdowns, and compliance mishaps. As Wharton professor of operations, information, and decisions, Morris Cohen, noted, “This is an unprecedented type of disruption. I don’t think we’ve ever seen anything like this.” Operational risk covers all aspects of people, processes, and technology; so much so that many large enterprises are creating risk operations centers (ROCs) to detect and prepare for inter-related threats and potential disruptions. Looking ahead, the ongoing disruptions across the labor, infrastructure, and regulatory environments will continue to prompt corporate and governmental responses and new guidelines. Operational change will be the only constant as enterprises seek resilience and agility during the pandemic and prepare for the new normal.

Announcing: Interos 2.1 Update

Posted on May 12, 2020April 13, 2021 by Harris Allgeier

2.1 Adds New Features

We hope that you have been staying safe and healthy as we navigate this brave, new, post-virus world.

Interos has been busy working on new features and enhancing existing ones to help organizations reopen their supply chains, and keep them open.

Introducing New COVID-19 Data in the Platform

As the novel coronavirus continues to impact businesses around the world, Interos has incorporated even more data about COVID-19 into the platform to help affected organizations better understand the impact of the pandemic on their supply chains. We are excited to share two new geospatial overlays that have been added to our platform.

New COVID-19 Total Cases Overlay

This overlay illustrates the severity of the total count of COVID-19 cases at the state and county level in the US and at the country level for the rest of the world. In this view, the darker the shade of blue, the more severe the impact from COVID-19.

New COVID-19 Curve Trend Overlay

This overlay illustrates whether the number of COVID-19 cases is trending up or down. The platform looks at cases over the past 7 days on a rolling average, updating every day. As shown above, the darker the red, the greater the number of cases as compared to prior period. Use this overlay to see how COVID-19 is trending in the counties, states, or countries your suppliers operate in.

Enhanced Supplier Profiles

We expanded the risk score information that is provided in each supplier profile. Building on the existing risk scores which provided 5 risk factors, customers can now see the key risk variables that make up each risk factor. Now you can see what variable is driving the risk factor score.

And Coming Soon… Alerts!

Update 2.2, which will be arriving soon, will fully enable real-time alerts. Customers will soon receive instant notifications any time a supplier changes status. We’ll have more to say when the update is ready to launch but stay tuned!

As always, Interos remains committed to providing our customers with valuable information to assess and mitigate risk across the their entire enterprise supply chains.

To learn more about recovering from COVID-19 visit www.Interos.ai or check out our latest whitepaper: The Road to Reopening.

Retail Challenges and the Recovery from COVID-19 with Greg Spragg

Posted on May 12, 2020April 13, 2021 by Harris Allgeier

Episode 5: Retail and the Recovery from COVID-19

It’s hard to recall a time that’s been been tougher for retailers than now. Over 50% of the US retail square footage is closed, there’s been an estimated 60% drop in retail and hospitality employment hous since february, and layoffs have been widespread across the industry. Despite such dire news, there’s room for hope as we move towards economic recovery.

We spoke with Greg Spragg, Managing Director at the Growthwise Group and an accomplished retail executive who previously worked at Walmart Stores Sam’s Club Division in several senior leadership roles. Greg spoke with us on key topics including:

Signals companies can look for to prepare for reopening
What kinds of retailers will be back to market first
Innovations created by COVID-19
Shortages in the meat industry – how real they are and what people can do
The broader economic impact of retail closures
…and more!

Listen & Subscribe!

To learn more about Interos, visit Interos.ai.

Indicators of Supply Chain Risk in the Era of Coronavirus: Financial

Posted on May 7, 2020April 13, 2021 by Andrea Little Limbago

This is the second in a five-part series looking at global supply chain risk factors, COVID-19, and economic reopening.

The ongoing financial shock brought on by COVID-19 has hit the corporate sector unlike any other in modern times. Oxford Economics estimates a 12% decline in GDP in the first half of 2020 in the United States, a loss three times greater than during the 2008 financial crisis and the greatest economic contraction since 1946. COVID-19 is not only an immense public health trauma but a unprecedented financial shock as well. Both supply and demand are impacted with the almost complete elimination of foreign and domestic demand, while production, capital, and labor have similarly disappeared.

The pandemic-induced financial disruption has significant effects on the supply chain, and vice versa. Orders are cancelled or businesses are unable to pay invoices upstream, with cascading effects downstream throughout the supply chain. Firms with the ability to withstand the shock are already reassessing their supply chain, while many businesses will simply cease to exist. While there are numerous factors that contribute to financial risk; liquidity, solvency, and exposure are among the most impactful to a company’s overall financial risk and are especially informative during these exceptional circumstances.

Liquidity

Having cash on hand is foundational under normal circumstances but becomes essential to resiliency when revenue streams disappear. A core component of financial risk is assessing which businesses have enough reserves to make it through the year. There are a range of assets a business can hold, such as patents, property, or inventory. Liquidity captures the ability of a business to turn those assets into something you can spend. In short, as Columbia Business School professor Donna Hitscherich notes, “cash gives you time, you can think about your higher-order needs, rather than just survival.”

As in previous crises, there is already a shift to shorter-term commitments, with loans largely doled out to high-rated companies. Companies are trying to free up cash and are cancelling dividends and share buybacks. Based on a recent survey by the Association for Finance Professionals, preserving cash is a top priority, with 61% of organizations freezing hiring, and 70% have either delayed capital expenditures or are in the process of delaying them.

As the graph above demonstrates, there are numerous, additional factors that impact corporate liquidity, some of which can even be outside their control. For instance, in countries with higher inflation rates, businesses are less likely to keep large cash reserves. Also, the impact of the specific industry or sector a business is in cannot be overstated, which we are already seeing with plant closures and massive oil market disruptions.

Solvency

While cash on hand is a priority, the ability to pay off existing debt arguably poses even more existential challenges as businesses seek ways to remain viable during this crisis. There are already signs that many well-known names are considering bankruptcy, indicative of a broader trend over the last decade (see graph below) of accumulated debt.

This growth in debt has given rise to ‘zombie companies.’ While definitions vary, these are generally firms that do not have the earnings to cover their interest debt and therefore issue new debt to stay viable. Today, roughly 16% of American firms are zombie firms and are the core contributors to the large debt figures in the graph above. Zombie companies are not unique to the United States; China’s 300% debt to GDP rate is partially due to these firms, and last year approximately 13% of firms across the globe were considered zombie firms. By comparison, in 1990 this rate was 2%. As one expert

Exposure & Market Trends

With a global contraction expected to reach historic levels, there are additional indicators across the financial ecosystem that significantly impact a firm’s financial risk. Among these are the industry a business is in and geography, as demonstrated in the first figure. For instance, South Africa’s credit rating was moved to junk, while Canada’s was downgraded due to the oil crisis. While the impact of a country’s credit rating on a specific firm varies country to country, it does factor heavily into some firm’s ratings, especially in emerging markets.

These emerging markets are especially vulnerable to systemic shocks – such as a pandemic. As the chart below illustrates, emerging markets have experienced significant capital outflows during the pandemic, with the impact varying significantly country to country. To halt this exodus, which has already been coined the COVID cliff, there could be a return to capital controls in many of these markets. Just as the pandemic has halted the movement of goods, services, and people, the same may begin to be true for capital in certain markets.

Looking Ahead

Financial shocks will continue to pose a major risk to businesses throughout and following the ongoing crisis, with wildly divergent outcomes for different organizations. To weather them, companies should first focus on the fundamentals. As one financial manager noted, “Companies should, most importantly, have balance sheet strength to manage through a protracted shutdown.” Pre-COVID levels of liquidity and solvency are significant indicators of whether a business can withstand this uncertainty.

Second, governments across the globe are taking unprecedented steps to mitigate the sweeping impact of the pandemic. For instance, as the pandemic spreads across Latin America, with Guayaquil, Ecuador the hardest hit so far in the region, there are a range of relief programs being implemented and many that are well-underway. These interventions tend to focus on market liquidity and preparation for upcoming bankruptcies. Across the pond, the U.K. is relaxing their insolvency laws to help their businesses remain viable. The efficacy of the various governmental actions here and globally will impact financial risk and stability.

Finally, financial risk mitigation relies heavily on preparing supply chains for the changed world. As noted above regarding debt chains, the financial risks posed up and downstream a supply chain propagate throughout the entire network of dependencies. Maintaining better visibility and going deeper across the extended global supply chain will be key to mitigating financial risk as this crisis evolves.

The Interos platform monitors financial risk to assess its impact on extended enterprise supply chains. We are committed to continuing to monitor COVID-19 -driven upheaval and providing insight for businesses searching for the path to economic recovery and adapting to the “new normal.” The next piece in this series will focus on the operational disruptions to supply chains, and how COVID-19 is impacting these risks.

To learn more about how we capture financial risks to your supply chain, visit interosai.kinsta.cloud and check out our latest whitepaper on how businesses can recover from COVID-19.