Chapter 1
Advanced manufacturing and mobility
The industry is facing disrupted supply chains and a significant drop in consumer demand.
From end-user demand to supply-chain disruptions and plant closures, companies in each of these sectors are grappling with the impact of COVID-19. The automotive sector is expected to face significant disruption in production, its global supply chain and customer demand – everything from a dramatic drop in new vehicle sales in China to supply-chain stoppages and plant closures. Industrial-products and chemical-products companies are facing deferred demand, supply disruptions and potential plant closures, dramatically impacting retail and purchasing prices. Finally, airlines and transportation companies globally are severely impacted by the significant drop in demand for freight and passenger transport, as well as the cancellation of events.
Actions you can take
Global production and supply chain disruption
- Assess your supply chain and analyze the impact on operations
- Identify critical parts, processes and sites
- Synchronize supply, manufacturing, logistics and fulfillment and re-position inventory
- Develop a strategy for suppliers at risk
Increasing customer uncertainty
- Update business plans to reflect drop in demand
- Manage working capital and optimize costs
- Review inventory and adapt production
- Manage inventory to optimize ramp-up of production
- Evaluate impairment and other estimates
Stress test for crisis management
- Install risk intelligence monitoring and risk response operating procedures
- Protect employee population and deal with employee concerns regarding risk of virus infections in the workplace, in client interactions, in business travel, etc.
- Address communication in cases of employee infections
Regulatory and legal issues
- Provide legal guidelines in terms of employer/employee rights and obligations
- Account for business interruption losses under guidelines in local areas and global headquarters
- Comply with business-loss insurance claim requirements
- Plan for tax implications and analyze tax impact of changes to the supply-chain
Questions you should ask
- What are our business continuity and crisis-management plans?
- How can we manage the financial losses resulting from interruption to our business?
Chapter 2
Consumer
End-to-end value chain disruption is creating significant imbalances between supply and demand.
From end-user demand to supply-chain disruptions and plant closures, companies in each of these sectors are grappling with the impact of COVID-19. The automotive sector is expected to face significant disruption in production, its global supply chain and customer demand – everything from a dramatic drop in new vehicle sales in China to supply-chain stoppages and plant closures. Industrial-products and chemical-products companies are facing deferred demand, supply disruptions and potential plant closures, dramatically impacting retail and purchasing prices. Finally, airlines and transportation companies globally are severely impacted by the significant drop in demand for freight and passenger transport, as well as the cancellation of events.
Actions you can take
Global production and supply chain disruption
- Assess your supply chain and analyze the impact on operations
- Identify critical parts, processes and sites
- Synchronize supply, manufacturing, logistics and fulfillment and re-position inventory
- Develop a strategy for suppliers at risk
Increasing customer uncertainty
- Update business plans to reflect drop in demand
- Manage working capital and optimize costs
- Review inventory and adapt production
- Manage inventory to optimize ramp-up of production
- Evaluate impairment and other estimates
Stress test for crisis management
- Install risk intelligence monitoring and risk response operating procedures
- Protect employee population and deal with employee concerns regarding risk of virus infections in the workplace, in client interactions, in business travel, etc.
- Address communication in cases of employee infections
Regulatory and legal issues
- Provide legal guidelines in terms of employer/employee rights and obligations
- Account for business interruption losses under guidelines in local areas and global headquarters
- Comply with business-loss insurance claim requirements
- Plan for tax implications and analyze tax impact of changes to the supply-chain
Questions you should ask
- What are our business continuity and crisis-management plans?
- How can we manage the financial losses resulting from interruption to our business?
Chapter 3
Energy and resources
Demand, production, and global supply chains are disrupted amid falling demand.
What happens in China will have implications for global energy markets for the balance of 2020. Oil, mineral and metals demand forecasts have been revised downward based on the impact on the Chinese economy, and the global spread of COVID-19 will broaden and deepen those impacts. Without supply discipline in the face of slowing demand, commodity markets are likely to become oversupplied, putting further pressure on prices. In the oil market, the balance between North American production growth and the production discipline of the greater Organization of Petroleum Exporting Countries region has been significantly disrupted. Industrial activity will decline as companies send workers home and the resulting disruption to supply chains will have a multiplier effect. Coal and gas use, and renewables power generation will slow as industrial and commercial demand falls.
Actions you can take
Falling global energy and commodity demand
- Identify and cut discretionary costs and capital expenditures; open rapid, proactive dialogue with debt and other finance providers
- Evaluate impairment and other estimates
- Review areas for businesses consolidation
- Analyze crisis resolution scenarios to time growth capital
Market uncertainty and commodity price volatility
- Review risk-management processes, systems and parameters to better understand and measure the impact of extraordinary events
- Revisit risk appetites and trading limits in light of new environment
- Look for opportunities to consolidate and diversify risks on behalf of operating units and customers
Crisis management as business and industrial activities temporarily close
- Develop, implement and review EHS management systems
- Implement global mobility/relocation support
- Enhance brand and license to operate by being transparent and agile in response to all stakeholders
- Enable mobile working and collaboration to reduce impact of local disruption
- Implement alternative operating models, e.g., remote operating centers or the designation of alternating onsite teams
Supply chain disruption as producers curtail operations
- Build digital twins to analyze disruptions in real time and roadmaps for value chain visibility
- Revisit supply chain architecture in light of newly surfaced risk factors
- Create contingencies for defaults among product suppliers or distributors
- Plan for tax implications of changes to the supply chain
Questions you should ask
- How do we avoid stranded assets?
- Do we have the operational visibility to act quickly?
- What contingencies do we have for sustained disruption?
Chapter 4
Financial services
Financial-market volatility and a looming global recession are amplifying impact.
We’ve already seen the market volatility sparked by COVID-19 and forecasts of its likely worldwide economic impact, weakening investment returns and potentially adversely affecting the capital position of financial institutions. A sustained economic slowdown triggered by the outbreak will also put negative pressure on revenue and lead to a material increase in credit risk and a potential spike in claims including for health, credit and event cancellation insurance. Navigate this challenging environment requires financial services firms focus on better communication, enhanced consumer relationships and acting more transparently with customers and investors. Over the short term, we see support for a shift toward online distribution and testing business continuity policies; over the longer term, firms should introduce comprehensive enterprise and cyber resilience models to prepare, sense and respond to disruption.
Actions you can take
Stakeholder health and safety
- Communicate health and safety priorities to personnel
- Discuss alternative customer trust and engagement priorities in the event of disrupted channels
Financial risk exposure
- Consider potential financial impact of volatility in earnings, increased cost of business, loss in revenue
- Assess liquidity and capital impact on own business and clients due to market volatility, credit impairment, and a potential global economic downturn; assess forbearance impacts, and understand accounting implications
- Evaluate exposure to business interruption, supply claims and event cancellation claims
Loss of productivity and workforce strategy
- Consider accelerated process to provision access and entitlements for repositioned resources
- Enhance use of digital distribution platforms for marketing and distribution
- Manage workforce to allow for timely processing (e.g. asset servicers, custodians and TPAs) as more employees work remotely
Non-financial risk exposure
- Understand critical technology and cyber operations in the event of nearly remote-only work force
- Introduce comprehensive enterprise and cyber resilience model to prepare, sense, and respond to most forms of disruption
- Understand third-party resilience and confirm alignment with your own plans
- Understand implications of client restructuring due to covenant breaches and defaults
Questions you should ask
- Are we prepared to respond to regulatory scrutiny of our preparedness for continuity?
- Banking and capital markets: Are we updating our credit risk models?
- Insurance: How will we manage a potential spike in claims?
- Wealth and asset management: Are we preparing for potential triggers to investment mandates and increased redemptions?
Chapter 5
Government and public sector
Challenged by the need to respond to the crisis, it’s preparing for an economic downturn and enacting fiscal stimulus.
Governments and the public sector industry are at the frontline of responding to COVID-19, which underscores three urgent tasks. First, governments need to quickly respond to the current public-health emergency by limiting contagion, stockpiling critical medical supplies, diverting funds to emergency research, and prioritizing resources to reach populations most at risk. Second, they must prepare for the possibility of a significant global economic downturn. With international debt levels at the highest in 50 years and interest rates at record lows, governments have fewer monetary and fiscal policy instruments to stabilize the economy. This will constrain future spending, while simultaneously increasing demand for services. Third, governments need to develop stimulus measures to help citizens cope with the immediate downturn and build resilience in the system for future generations.
Actions you can take
Significant global economic downturn
- Optimizing budgets
- Supporting the end-to end realignment of services and restructuring of government
- Prioritizing technologies to upgrade procurement management
Economic fragility and targeted stimulus measures
- Conduct a risk analysis to assess public health and economic vulnerabilities
- Evaluate stimulus measures for rapid recovery
- Identify policies to build resiliency and absorb negative shocks over the medium- and long-term
Increased citizen vulnerability and demand for services
- Use predictive analytics to prioritize service delivery to populations most at risk
- Leverage publicly available data sources to triage information and limit disruption
- Increase agency collaboration to breakdown organizational silos
Strained crisis management resources
- Offer best practices for crisis management and incident response
- Help develop strategies for emergency management
- Develop crisis communication, skills development and training programs
Questions you should ask
- Have we identified knowledge gaps and data priorities needed to assess the current risk environment?
- How can we optimize government spending to address new priorities?
- What measures can we design now to stimulate growth?
Chapter 6
Real estate, hospitality and construction
The sectors are battling travel restrictions, behaviour shifts and supply-chain issues.
Hospitality and tourism were among the first industries to be disrupted by COVID-19 and the most significant to date. Implementation of broad travel restrictions, the cancellation of meetings, conferences and events, and personal health concerns have resulted in massive cancellations of existing events and sharply reduced future bookings. Supply-chain disruption will impact the operations of many construction companies, while the health of their already limited labor force is a concern. More broadly, the disruption to people’s lives has shifted where and how they spending their time (e.g., working from home, increased virtual shopping and entertainment), which may accelerate the adoption of these already shifting behaviors and upend the traditional supply/demand model.
Actions you can take
Global disruption to business and supply chains
- Validate business plans to incorporate crisis response and business preservation concerns
- Develop customer-focused response to ensure safety, preserve loyalty and brand value
- Conduct end-to-end supply chain risk assessments
Disruption driven change
- Undertake enterprise transformation strategy to validate and target technology implementation
- Implement intelligent spaces solutions to allow for faster and better-informed strategic decision making
- Automate enterprise services to improve operations, processes and asset optimization
Interruption to capital, debt and liquidity
- Assess shifting capital needs and availability
- Review debt structure, focusing on optimization, covenant compliance and credit needs
- Ensure adequate liquidity given shift in business dynamics and demands
Shifts in real estate demand and usage
- Assess customer/tenant implications
- Develop usage policies responsive to customer needs
- Consider impact on acquisition, merger, divestiture, and transformation efforts
- Conduct portfolio risk assessment
Questions you should ask
- Do we have the data necessary to take decisive, informed action to minimize risks to our assets and business?
- How do we navigate the complexity of supply disruption?
- How do we transform to become more resilient?
Chapter 7
Health sciences and wellness
The industry is coping with being underprepared for widespread disease transmission.
As community transmission of COVID-19 becomes widespread, its effects are being felt on two fronts: by manufacturers that rely heavily on China for ingredients or labor (e.g., generic drug makers and hospital equipment suppliers), and by health providers, who must deliver routine care and respond to the evolving crisis. Current high inventory levels of routine medicines and the manufacture of branded products outside China have blunted shortages of most drugs, though there are shortages of protective gear, beds and diagnostics. If the pandemic extends for more than three months, there may be shortages of antibiotics and other generics, which means governments need to actively manage the supply chains of medicines and supplies. As COVID-19 moves from containment to mitigation, health systems do not have the staff to care for the projected number of patients, especially the higher risk elderly, while managing public fears. Workforce shortages could be exacerbated if staff fall sick or are quarantined.
Actions you can take
Supply chain fragility and/or disruptions
- Conduct end-to-end supply-chain risk assessments and build a diverse base of suppliers and channels
- Use artificial intelligence to model the spread of the disease and inform real-time health care staffing
- Create COVID-19 triage centers to limit potential exposure to staff and other patients
Regulatory/governmental actions linked to supply and price
- Quickly scale early or conditional approvals of drugs/vaccines to treat/prevent COVID-19
- Maximize access to drugs and supplies while limiting potential price controls through partnerships with governments, payers and health systems
Balancing crisis management and routine business
- Create a crisis team to centralize messaging and proactively respond to misinformation
- Use logistics and warehousing to target medical supplies to where need is greatest
- Meet care demands using telemedicine, robotic technology and first responders
Disruptions to cash flow and liquidity
- Shift capital allocation and secure short-term credit to ensure liquidity
- Create contingencies for defaults among product suppliers or distributors
Questions you should ask
- Are we able to navigate the complexity of supply disruption, and resume supply swiftly when markets recover?
- How can I keep my core business processes at optimal levels?
- What actions will best ensure the safety of our workforce?
Chapter 8
Private equity
It must manage portfolios while assessing the potential impact on fundraising and new deals.
Most of the effect of the COVID-19 pandemic on the private-equity sector is yet to be felt. For now, it appears many deals and financings continue to move forward, and PE firms have been preparing for a potential economic downturn for the past 2-3 years with significant EBITDA declines already modeled into most deals. In addition, PE firms have approximately US$750b in dry powder available to fund new deals. Firms are taking a number of steps to respond to the outbreak, including limiting travel, adding pandemic-related language to new deal and fundraising documents, and deploying additional operating resources to work closely with firms in functions like supply chain. We see fundraising potentially impacted over the near term as travel restrictions prevent limited partners from finalizing diligence.
Actions you can take
Liquidity constraints driven by credit tightening
- Maintain liquidity through cash management, cash-generating action programs and stakeholder management
- Update your strategy or business plan while responding via crisis management
- Perform working-capital assessments across your portfolio
Private credit funds get more active
- Assess current portfolio risk factors
- Extend credit to cash-constrained companies, particularly in the middle market
New acquisitions
- Examine ability to take companies private and undertake distressed-asset deals amid heightened market volatility
- Undertake greater diligence around assessing new risks
Uncertainty of impact across the portfolio
- Understand current and future vulnerabilities through portfolio review
- Stress test and scenario plan for operational disruptions and potential significant declines in demand
Questions you should ask
- How vulnerable is our portfolio to disruptions to our supply chain, human capital, or liquidity?
- What’s our deployment strategy as volatility increases?
- What contingencies do we have in place for sourcing and diligence?
Chapter 9
Technology, media and entertainment, telecommunications
Consumer demand has dropped precipitously, while business demands have intensified.
It’s already clear COVID-19 will have a permanent impact on the TMT industry. Consumer demand has dropped precipitously across the entertainment sector – from television to film and live events, such as concerts and sports – and companies have all but lost sight of their supply chains in everything from computer and electronics to communications and network equipment, publishing and semiconductors. That’s made it tricky to balance demand with supply, although those with robust inventory on hand prior to the pandemic are reaping short-term benefits as they fulfill orders with available stock. The mass-shift to working from home has also forced changes, applying unprecedented pressure on telecommunications networks and spiking call-center activity for technical support, just as call-center operators are struggling to maintain staffing amid the pandemic.
Working capital and cash management is an area of intense focus, and we expect to see new forms of cash pooling and new working capital forecasting models emerge as TMT companies seek to understand their capacity to make required tax payments, seek opportunities to defer tax obligations, and seek net operating loss carryback opportunities. Finally, companies with significant live events that have been cancelled or deferred (such as concerts, film releases and software-user conferences) are reviewing the impact on revenue, income, and their sales pipeline. Software companies, in particular, rely on large, global user conferences to create and close significant opportunities.
Actions you can take
Supply-chain disruption
- Conduct end-to-end supply chain risk assessments; including programs for a supplier counter-party risk assessment
- Model alternate supply scenarios and trade-offs
- Actively review and test controls that monitor for supply-chain fraud and compliance
- Develop new supply chain forecasting models to understand product availability
Working capital
- Segment receivables by COVID-19-affected customers to understand exposure
- Model impact on delayed receivables against opportunity to delay payments
Claims and compliance
- Evaluate client loss/risk situations and engage with claims services to analyze, prepare, present and settle complex business continuity claims
- Evaluate effectiveness of compliance and integrity management to avoid non-compliance
Financial matters and tax
- Assess financial impact of closures and stranded costs such as risks, provisions and impairments
- Ensure forecasting of changing supply/business models is robust and understood by markets
- Evaluate and advise on treatment of potential catastrophic losses for tax purposes
People measures and restrictions
- Explore human capital considerations, including crisis management frameworks and contingencies
- Test and implement new technologies/remote collaboration platforms if situation prolongs
- Explore and implement managed services to allow companies to focus on core activities
Questions you should ask
- What tax incentives and treatments should we consider?
- Can we work with technology and ecosystem partners to quickly understand how our markets have changed, and adapt to those new dynamics and risks?
- Do we have the tools and models to develop new supply chain, cash, revenue, and cost models?
- Are we considering all of the physical and cyber security threats our company and people are exposed to?
Summary
How should leaders respond to the unprecedented disruption of the COVID-19 pandemic? Here we breakdown the impact on nine key industries, actions organizations can undertake, and questions to help push your thinking.
