Effects of COVID-19 Pandemic – Taking Costs Out of the Business
By Eric Johnson
As the COVID-19 pandemic begins to clearly affect the economy, organizations negatively affected by the stay-at-home mandate are looking to reduce organizational costs as much as possible in order to stabilize cash outlays until an economic bottom occurs and an upswing begins. Below are some suggestions to accomplish this considering time is of the essence.
Identify Low Hanging Fruit
Have a discussion with employees on where waste can be removed. Employees are the first line of offence in identifying places where actions and activities are outdated or irrelevant and should be eliminated from the work process. They not only have insights to where waste exists but have probably thought through solutions on how to quickly resolve. Additionally, discussions with customers can also identify areas of waste, such as packaging or elements of products that can be eliminated without sacrificing quality or customer satisfaction.
Extend payables farther than receivables if possible
Everyone is in the same situation right now. However, even if by several days, the further you can gap your payables to your receivables, the more time you will have ensure cash on hand and maybe even a bit of interest if invested correctly. Always engage your accountant or controller for the best approach given your situation, but liquidity is clearly king in this era.
Review all Operational Activities
This is the first step in identifying costs in the business. If not done before, this would be a perfect time to take stock of all business activities and understand where costs are generated. Develop a task force with individuals from various parts of the business, with a rotational structure to allow for multiple insights across the company. Accounting should be reviewing all expenses to identify areas that can be reduced. From an operations perspective, first and foremost should be an identification of both major and minor steps within the operational process. Take some spare time when not dealing with emergencies to set up a war room to outline the major parts of the business and to document where waste is occurring. Create a living diagram of the process and as improvements are made, change the diagram to reflect the current state and continuously review as needed. This is important because it visualizes what is happening in the business – rather than painting as hypotheticals. Other areas of visualization occur in manufacturing as waste and scrap that was normally considered to be a “part of the process” is now considered to be dollars going out the door. Service and transactional operations also can take advantage of cost reductions, regarding time and elements of operations that can be reduced to speed up outputs to customers.
While the COVID-19 is a medical issue that will be resolved over a shorter time, the longer time frame will revolve around building the economy, and with that will come questions around what is important in the organization. As customers shift toward a new normal, organizations that have developed the ability to be agile with their cost structure will emerge operationally better off and with a smarter approach to business efficiency both now and in the future.