For strategic business planners, COVID provided many lessons as the ultimate stress test, bringing issues seemingly from all angles. The scale and length of the disruptions likely stretched many a business continuity plan beyond their limits in a very short amount of time. It is imperative that companies redefine the breadth of their planning to include future events similar in scale and scope to COVID. What seemed impossible before COVID became all too possible, and business leaders must be better prepared.
What did your company do right? What did it do wrong? What could it have done? What should it have done?
As restrictions have eased and the worst of the pandemic fades into history, has your company had the opportunity to address the questions above? Or perhaps the continued supply chain and inflation issues are not allowing you to allocate the time or human capital to focus on those questions.
When I was a CFO of a wholesale foodservice distribution company in California, our team was closely monitoring COVID’s progression in early 2020 and actively reforecasting our business plans based on expected issues with global supply chain disruptions. When restaurants were forced to close their doors, our company’s daily sales plummeted by 85% overnight, and a crisis was born.
Sound familiar? It is probably fair to say that most companies, including ours, weren’t prepared for the speed and scale of COVID and that most existing continuity plans were designed for shorter-term, localized events. It became clear that we needed to redefine our plan to cover a broader disruption over a longer period and incorporate the lessons we learned.
Developing Your Business Continuity Plan: Simplicity and the Right Questions
The first element to developing a plan is that it requires a “Tone from the Top,” establishing its priority to the company. The second element is building an engaged, creative and collaborative team. It is important to keep your plan as simple and direct as possible, and the plan itself needs to be sustainable beyond the team that created it.
In search of simplicity and creativity, I have been influenced by a couple of sources. First is the Freakonomics series written by Steven D. Levitt and Stephen J. Dubner, and the second is The Checklist Manifesto: How to Get Things Right, written by Atul Gawande. Besides entertaining and amusing applications of economic theory to a variety of topics, at its roots, Freakonomics looks at issues in creative new ways, asking the right questions and understanding incentives. The Checklist Manifesto’s lesson is that in the face of an increasingly complex world, the simple checklist can help us do better. What makes these books compelling is their ultimate message: much can be achieved by keeping things simple and asking the right questions.
A lot can be learned by two industries that make the most use of checklists: the medical industry and the airline industry. All medical practitioners use checklists and ask questions – as much to triage a situation and understand severity as to eliminate possibilities as they formulate diagnoses and paths for treatment. Airline pilots use checklists during pre-flight, take-off, in-flight, landing prep and finally the landing itself. Both professions also have well-developed crisis checklists that help them rapidly react to what can be life-or-death situations.
Related to Business Continuity Plans
The Business Continuity Plan Checklist
I have tried to view a business continuity plan as a form of checklist that helps a team navigate through a disruption in clear, concise actions that are planned and designed to execute quickly to help mitigate downside risk.
Let’s discuss some of the key elements to be considered when developing a redefined business continuity plan for a future COVID-like disruption.
Establish a Business Continuity Team
This team should be cross functional and prepared to continuously review and update the plan as necessary. Review your previous plan and plot it against what happened in COVID. What are the results? Where did it pass, and where did it fail? What was missing entirely from your previous plan?
Establishing the team begins with the team leader. In most organizations, the most logical person is usually the CFO or COO, especially if your organization is smaller or medium sized and has a limited number of operating sites. Larger organizations with many sites and functions may need to take a more layered approach beginning at the site level and then rolling site plans up into a consolidated plan.
The team assembled should represent all of the operational and administrative functions. It is critical to include operational managers, as their specific knowledge will deliver the most accurate plan. However, also be careful not to make your team too large. As an example, if a Controller is able to represent Accounting, AR and AP, then have one person versus three.
IT Stack Review
The COVID pandemic exposed the weaknesses of many legacy systems, from their inability to provide BI efficiently to hindering virtual office effectiveness. In my food distribution company, we had been considering a new ERP solution prior to the pandemic and had already completed most of the selection process. Most analysis required a manipulation of large tables of data in Excel. This was not efficient before the pandemic and was remarkably less so in crisis when information was needed rapidly and frequently. Needless to say, we engaged with a provider less than a year after the pandemic began.
Don’t hesitate to invest if you are in need, as IT upgrade and implementation project volumes have skyrocketed, and provider resources continue to be stretched thin.
Understand What is Mission Critical
Identify areas that must keep running to keep the business moving and areas that can be scaled back. Did you make the proper choices during COVID? Would you make those same choices next time?
The core mission of all food distribution companies is making all deliveries on time and accurate, where many customers require certain delivery windows and frequency of delivery. In addition, if a product is missing or delivered incorrectly, the industry has various methods to deliver those missing cases either that same day or by the next day. The cost for these redeliveries can be high, but it is also a competitive differentiation point that was almost considered to be a marketing cost. While frequency is dictated by volume, during the pandemic, delivery windows and redeliveries were areas that we scaled back to maintain any level of efficiency on much lower volumes. It was also a way to take into account the safety of our employees by limiting the number of visits to customers.
We found that our goodwill gained by having high service levels before the pandemic paid us back with cooperative customers during. Are there similar examples in your company? Where might you be able to scale back temporarily that has lower risk of affecting future business?
Leverage Industry Relationships
In many cases, a lot of goodwill was established between a company and its vendors and customers as everyone tried to navigate COVID to keep sales and cash moving. Keep that goodwill alive by remaining engaged and sharing ideas about your business continuity planning that perhaps could lead to an agreement on protocols and terms today – saving precious time and effort at the time of disruption.
In the wholesale distribution market, the cash flow between vendors, distributors and customers is an extremely close relationship and even more so when customers and vendors have pricing deals on products. In a number of cases during the pandemic, it was necessary to extend AR terms with our customers, which we were willing to do, but only if they could help us extend our terms with vendors. These protocols, formed in a dire time, can be incorporated into a new continuity plan via formal or informal agreements among the parties today.
Industry Best Practices
Engage with industry trade groups and, if practical, non-competitors to create a forum of shared ideas and best practices. While highly competitive, the food industry trade groups sponsor several moderated forums and group meetings to share ideas and experiences. They are invaluable places to get ideas, help validate your own processes or possibly find industry partners to solve common problems such as comparing continuity plans.
Document your facilities needs and limitations if a social distancing protocol is re-established. Understand lead times and resources necessary to implement changes to limit additional disruption.
As food distribution was considered an essential business, much of our work could not be completed remotely. Many of us on the leadership team continued to be onsite throughout the pandemic while transitioning a number of functions to remote. Our office spaces were geared with more offices than cubes with no open-space work areas, and our warehouses were large enough to maintain social distancing rules even during the nightly selection process (the lower volume “helped” as well). We were fairly lucky that our space was relatively conducive to the social distancing requirements.
If you are a company that cannot or does not want to be remote in the future, how would your space planning hold up if social distancing had to be implemented? How would that work if your company increased in size by 25%? By 50%?
Procurement & Inventory
Despite weeks of warning signs about what a severe COVID outbreak might look like, industry and government were essentially business-as-usual up to the point of lockdown. Can you identify these signs in the future? How can vendors and customers help with this assessment? Is it possible or appropriate to secure backup vendors to prevent stockouts and non-traditional sales channel partners to sell excess or expiring inventory?
Cash Flow & AR/AP
If there is one thing that holds true in good times and bad, it’s that cash is always king. If your company is like most, it already pays close attention to cash flow. However, were there unforeseen issues due to COVID that you can memorialize and add to your checklist? Are your cash flow models repeatable on a daily basis and derived mainly from your ERP or BI system? Can you leverage your banking relationship today to ensure contingency funds are available if a next event occurs? How did AR and AP play out during COVID?
While this is the most sensitive of topics, a business continuity plan must consider various Human-Capital-related options. Companies must prepare succession plans and have plans in place should key employees be unable to work. The goal of any plan should be to retain as many people as possible, if possible.
Get Started on Your Business Continuity Plan
Ben Franklin may have said it best when he coined the phrase “Failing to plan is planning to fail.” The time to act is now. Having an updated continuity plan is essential for every business, and the diverse backgrounds of our Consultants at 8020 are well positioned to help you strategically assess and prepare your company’s business continuity plan. To learn more, you can contact us through our website, or download our business stabilization and contingency planning services explainer below: