The quick evolution of the COVID pandemic is not only concerning the health of millions of people, but it is also generating a disruption in global economies with an intensity that was hard to imagine. The crisis is impacting enterprises in many different ways: the high volatility or collapse of the demand; the difficulty of running the business during lockdown or social distancing; the cut or delay of supply from many countries; or, worse, the perfect storm: all these effects together.
The survey conducted in Vietnam from Mar 23 to Apr 06 2020 shows an average impact on sales of -21% in Q1, and reveals not much optimism for the whole 2020: -21% sales compared to the plans drafted before the crisis.
More than half of respondents (57%) are facing the most critical situation: both demand and supply disruption, reporting worst sales results both in Q1 and year end estimated (-27% and -23%).
However, results vary greatly depending on the business sector and industry, as well on the nature of the disruption and, as we will see further in the last section, on the readiness of companies to combat the crisis.
How much is the current crisis impacting your sales targets?
Trading is the sector suffering the most in Q1 (-34%), more exposed to crossborder disruptions than other sectors.
On the long term (2020), companies offering professional services are the most pessimistic, suffering from the domino effect of the crisis in the whole economy.
Are you currently facing issues in Demand and/or Supply?
Sectors that provide tangible products (Manufacturing, Retail & Distribution, Trading) appear to be more exposed to both demand and supply disruptions (61-75%) than service sectors.
Sales loss and demand/supply disruption
Companies facing only supply disruptions were able to hold the topline in Q1, probably due to the delaying effect of inventory. In fact, by the end of the year, the estimated loss is not far from businesses facing issues on the demand side.
Only a very small exception of respondents are recording more sales than planned: typically businesses related to basic, daily consumption products. However, with very high demand volatility reported, those businesses also face the risk of generating higher costs, poor service level, stockouts.
80% of respondents reported having a drop in demand, the most difficult disruption a business can face. In a scenario of relevant drop of revenue, overhead costs seriously undermine companies’ cash flow.
In this scenario, two common strategies to counterbalance demand drop are carrying out changes in the product portfolio and reinforcing promotional activities. 60% of respondents reported adopting the first strategy, 37% the later one. Only 22% of the companies are using both of them.
Finally, 47% of respondents of all sectors consider that they are having delays in delivering product or services to their customers. Most common reasons are the unavailability of product, due to the lack of synchronisation of the supply chain in the new context and disruptions in the supply, and difficulty booking overseas transportation.
Have you already used promotional activities to compensate for demand drop?
Trading and Retail & Distribution enterprises who experienced the largest sales drop were the ones who applied more promotional activities; while Professional services who did not encounter big drops in sales in Q1 but expected their revenues to go down at year end are considering using more promotional activities than before to lighten up the situation.
Did you make any changes in your product portfolio to adapt to current demand evolutions?
A majority of companies in all sectors are adapting their portfolio to the new context. Surprisingly in the Manufacturing sector, 41% of respondents are not using this strategy, which in many cases is very effective to mitigate the impact of supply disruptions.
Is the timeliness of your customer deliveries affected?
Trading companies reported the hardest hit, being the ones most affected by finished goods import disruptions. Professional services are also highly affected, for different reasons, from the supply of necessary materials to deliver the service to the limitation of people movement, domestically and internationally.
73% of respondents reported having supply issues. This number increases to 85% when we consider only the sectors commercializing tangible goods, i.e. Manufacturing, Retail and Trading. For this three sectors, supply disruption is more frequent than the demand drop (75% of respondents).
Inventories help to delay the impact of supply disruption for a while, but in the long term can be as critical for a business as the demand drop. The heaviest impact comes from the global sourcing, from China, Europe and other countries of Asia: overseas manufacturers reduced or halted their production, and the lack of overseas transportation capacity not only delayed the reception of goods, but generated higher transportation costs.
75% of companies that reported having difficulty to import from other countries, also mentioned difficulty to find transportation capacity.
Type of offerings and demand/supply disruption
63% of Manufauturing, Retail and Trading companies are in the hardest position to manage both supply and demand disruptions at the same time. This situation affects as well 43% of Service businesses, especially Logistics companies.
If you have supply issues, what are the material types and countries from which you have had most difficulty to source?
Nearly half of the companies (44%) who have faced supply issues had difficulties sourcing from China, in which a large portion was shortage of raw materials.
In which area do you have issues finding transport capacity?
Air freight and sea transportation are under heavy stress, mostly due to indirect impacts of the COVID pandemic: cargo air freight is mostly based on passenger flights, severely restricted, and ports in many countries are also reporting several restrictions or lags.
Transport capacity and international sourcing problems
International trade is severely affected by transportation disruption, hitted harder than for the domestic routes.
BCP is a fundamental tool to support dealing with potential threats to a company, reducing the disruptive impacts and accelerating the recovery.
Good news is that the large majority (84%) of respondents reported to already have a BCP in place.
However, only 25% of respondents are very satisfied on how the BCP has been helping in dealing with the COVID pandemic, reporting 3-16% lower sales losses compared to the remaining groups.
Most common actions mentioned to improve current BCP are:
Consider global/regional not only domestic scenarios
Enhance backup actions through all the supply chain, including human resources
Improve top down alignment
Enable better coordination and communication towards faster response
Have you already had a Business Continuity Plan (BCP) ready to deploy before the current crisis, and if yes, how effective is it to mitigate the impacts of the crisis?
27% of the companies mentioned that they had no BCP in place, or their BCP was not robust enough to support the business in such a crisis. Professional services is the sector less prepared to face crisis (50%).
Sales loss and Business Continuity Plan
Companies with a good/excellent BCP in place estimate lower impact on sales in Q1 and by the end of the year.