HSBC hosted a virtual round-table in June with senior business leaders from Asia to explore how COVID-19 had affected their businesses, staff, customer needs and supply chains - and how they had responded to these changes, both immediately and in the longer term.
Key takeaways for business leaders in order to navigate COVID-19 related challenges successfully:
- Reinforcing the connection between employee and employer pays major dividends
- Practical steps are needed to achieve this
- Examples include regular wellbeing checks and protective equipment
- Regular and frequent communication with staff, customers and suppliers is essential
- This delivers an invaluable measure of certainty in challenging conditions, which is the real underlying priority for many individuals
- Make the most of online communication tools, which may well become part of the new normal
- Resilience is essential
- The possible additional cost to achieve this is worth paying in order to minimise risk
- Flexibility is similarly vital when the corporate business model may have to be changed extremely quickly
- Get a fast and firm grip on your cash position
- Re-examine inventory priorities quickly and frequently in the light of shifting demand across channels
- Cut inventory where necessary, but bear in mind the impact on suppliers, particularly important but less well-capitalised ones
Impact of COVID-19
The round-table discussion opened with guest speakers outlining the effect of COVID-19 on their businesses and their immediate responses. In the case of Lesaffre, as the world's largest yeast manufacturer, the company's wholesale customers in hospitality-associated industries were obviously appreciably affected. Hotels, restaurants, airlines - all major customers - were shut down. However, demand from B2C customers has increased significantly, hence Lesaffre needed to make changes in production and logistics rapidly to cater for this change.
In the case of Hempel, the lockdown heavily affected its business of supplying coatings to industry. However, the coincidence of the lockdown with normal factory closures for Chinese New Year helped minimise the impact, with the company's three factories in China only being closed for two to three weeks.
As a consumer fashion accessories designer, distributor and manufacturer, Fossil Group was initially significantly affected by the lockdown, with bricks and mortar outlets being completely closed down. However, the company was quick to evolve action plans based on its early experiences in China that could then be applied to its other markets globally. This enabled it to refine its existing disaster recovery plans to best effect and keep adapting them as experience grew.
Adapting to changing customer needs
Although Lesaffre's commercial customers were closed down, underlying consumer demand for its products remained strong. So in response to the channel disruption it was experiencing, it revised its business model to cater for B2C in addition to B2B channels. This in turn required reshaping the supply chain, so a WeChat group with the production team was established to ensure that Lesaffre could service the shift in demand characteristics. At the same time, to engage directly with consumers, it created a digital channel with video guides to home baking. This proved so successful that even after lockdown ceased, consumer home baking activity and associated demand have remained strong.
While Hempel's customers were clearly affected, most have now resumed normal operations and all the company's factories in China have now re-opened. Its full supply chain is now re-established and despite the lockdown it has still achieved 40% growth in the year to date. Nevertheless, retaining customer confidence was obviously essential, so under the exceptional conditions a lot of effort went into working out the most efficient and safest way to source raw materials, manufacture and ship to customers. In parallel, there was a major drive to keep customers fully informed and serviced as effectively as possible. This last point required a major logistics and tracing program for employees to ensure that none who had been in a high risk area would be visiting customers. Achieving this required considerable shuffling of front line staff, plus an effective communication program with customers, so they had confidence in the precautionary measures being taken.
Although physical stores and offices were closed, Fossil's online business proved resilient and - especially in China - has bounced back strongly. However, it has had to adapt to a significant shift in customer needs, with e-commerce now driving substantial sales volume. A key advantage here was that China kept its distribution networks up during lockdown, so consumers could order products from home and have them delivered.
Supply chain disruption
A key task for global businesses, such as those participating in the discussion, is maintaining resilient supply chains. John O'Brien of Fossil highlighted an interesting nuance here that underlined the importance of this. "We noticed that the market had become far more promotional than previously," he said. "That has really emphasised how critical it is to have robust supply chains and the ability to position the right inventory in the right place to take advantage of that trend."
In the current environment, Fossil found keeping warehousing and shipping operational far more challenging and costly than usual. However, in order to conserve cash, the company also temporarily froze all open orders for new products. While this prevented further new inventory build, it also raised the question of how best to optimise the conversion of existing inventory. A related challenge was minimising the impact of the order freeze on vendors - especially smaller suppliers with limited capital.
In the case of Hempel, the company was confident of continued demand as long as it could supply, so the focus was on having the clearest possible understanding of what it could source in/out. It therefore moved its planning meetings from being weekly to daily, with much of the emphasis on logistics. This proved invaluable, as it enabled Hempel to communicate more effectively with customers and explain to them what the company was able to deliver. It also enabled better sharing of information with suppliers and customers about which logistics routes were available. One lesson Hempel has learnt from this process has been the need to strengthen the supply chain and the planning process continually, so this is now an ongoing area of attention.
A similar daily planning and issue resolution process applied at Lesaffre.
One thing we learned from this was that for certain products we were perhaps too dependent on just one supplier.
"So we now know that we always need to have at least two different suppliers, which might not result in the lowest cost, but will reduce risk." Additionally, in order to minimise geographic concentration risks, Lesaffre recently purchased a new factory while in the middle of the pandemic, for which it was grateful for HSBC’s support.
Lessons learnt and future opportunities
A major event, such as a pandemic, tends to highlight areas where there may be room for future improvement. In the case of Fossil Group, John O'Brien pointed to two connected points where he felt a faster response might possibly have been beneficial. The first was the need to communicate more quickly with vendors to advise when they would be able to ship product again. This in turn was partly caused by frequent revisions to sales forecasts, which didn't necessarily improve their accuracy, but did delay communication with vendors. "I think in these exceptional circumstances, nobody really knows, so there is a risk of analysis paralysis" he said. "Therefore, a better future course of action might be to accept that a forecast might not be especially accurate but to act upon it anyway and adjust it later as further and better information becomes available."
In the case of Hempel, Nikolaj Enevoldsen also highlighted two connected themes.
I think we learned how important close communication with staff really was, partly for well-being reasons, but also because it meant that we benefitted from exceptional levels of information sharing.
Enevoldsen's teams in China were quick to pick up on the benefits of daily communication and made a point of passing this learning on to Hempel's operations in other countries. The sharing of information meant that Hempel's operations in China were exceptionally well informed on customer needs and perspectives, which it was able to leverage in optimising its supply chain in difficult circumstances.
Jean-Philippe Poulin echoed the importance of this employee focus in Lesaffre's response.
I think one of the key lessons that we learned is that the best investment we could have made during this crisis was to reinforce the connection between employee and employer.
"To do that requires not just words, but also deeds, such as by making serious efforts to keep employees safe. An indication of how employees respond to that care is the fact that we were able to complete an important acquisition in the north of China while the country was in lockdown."
The new normal
Sandeep Uppal observed that a common claim in the aftermath of any major event was that it had defined a new normal, so he asked the other speakers for their views on what constituted their new normal. John O'Brien highlighted the further acceleration of the existing shift to online business, because the enforced sojourn at home had meant that many people had the time to become accustomed to shopping online. He felt that a related shift was the increased prevalence of discounting as a means to encouraging consumers to complete their online purchases.
While Nikolaj Enevoldsen agreed that this approach to building future supply chain resilience could well become the new normal, he also highlighted possible changes in normal working practices. The enforced usage of remote working, videoconferencing and online chat had proved their value as communication tools that enabled efficient working. Therefore these also might become integral parts of the new normal.
This possibility was to some extent already being reflected in the behaviour of some of Lesaffre's customers, according to Jean-Philippe Poulin. They were now increasingly focused on not just value for money, but also value for time, being less willing to expend it on physical appointments. Virtual meetings might therefore become the new normal in a low touch economy, so if requesting a face to face meeting with a customer it would now be essential to prove real additional value for them by doing so.
Conclusion: key actions
To conclude the round-table, Sandeep Uppal asked each of the guest speakers for key actions that they would advise other business leaders to take immediately. John O'Brien recommended moving quickly to manage cash tightly, given the lack of clarity over the type of recovery that might or might not happen. This should be supplemented by a focus on inventory in order to have the right products to sell in possibly volatile conditions, which in turn meant taking your vendors with you in order to keep your supply chain functioning. Finally, he again stressed the need to avoid procrastination: the sales forecast from tomorrow might be no more accurate than the one from today, but it costs a valuable day.
Nikolaj Enevoldsen underlined the importance of really getting to know people, not only in your team and business, but also at your suppliers and customers. This needed to be supplemented by a similarly comprehensive knowledge of the quickest and most effective channels for communicating with those individuals.
A people and communication focus was also among Jean-Philippe Poulin's recommendations, but he also added the rider that not too much time should be wasted on grand long term strategic plans. A better use of time and resources was to invest in your people to create a working environment adaptive enough to cope with the unexpected and to fulfil the company's more immediate objectives.
Nikolaj joined Hempel Group in 2017 in HQ in Denmark and moved to Shanghai in 2019 as Regional CFO, Hempel North Asia. He has more than 15 years of experience in multinational business within the FMCG, Shipping, Oil and Chemical industries.
Nikolaj has a Master degree in Finance & Accounting from Copenhagen Business School.
John leads the Finance and elements of the Operations functions of Fossil Group's Global Supply Chain and APAC Commercial businesses. He has been based in Hong Kong since 2007. Prior to joining Fossil, he was CFO of Zenith International SA, part of the LVMH Group.
John holds a BA from Cambridge University and an EMBA from Kellogg/HKUST
Jean-Philippe joined Soufflet Group in 1995 and was appointed as CEO of Milling division in 2001.He joined Lesaffre Group in 2009 as President of the Overseas region (Africa and APAC) and was appointed President for Greater China in 2016.
As a founder and private investor in the last few years, Jean-Philippe is deeply passionate about the food sector. In particular - its dynamism, its capacity for innovation and its ability to sustainably nourish the planet.
Sandeep is the HSBC host of our roundtable. Based in Hong Kong, he is responsible for managing the Bank’s Large Corporate and Mid-Market subsidiary clients across 54 markets. With over 25 years’ experience in the banking industry, Sandeep has held senior management positions in Commercial Banking, Corporate Banking, Trade Services, Private Banking, Personal Banking and Strategic Planning.
Sandeep holds an MBA from XLRI, India and is an economics graduate from Delhi University.