Impending Business Impact

True story, so I thought I’d share.  (Especially since this is the first time I’ve ever had this happen!)

We got notification of a supplier closing its doors halfway through an RFP through a rejected email and website update that said: “Closed due to COVID-19.”

Industries, business environments, standard work attire, and so much more have started to change due to COVID-19. We are only starting to see some of the business impacts.

Which leaves us with the question, how can we quickly pivot to stay ahead of these trends?

And are there other trends we haven’t thought of in the new environment?

The people who are able to effectively get in front of these things will be the leaders in the new era.

“Closed due to COVID-19”

The business impact of COVID-19 is spreading just as fast as the virus. And by the looks of it, there is no end in sight.  So I guess I shouldn’t have been as surprised as I was to find out that the supplier had closed their doors.

Even if it was after being in the business since the 1970s, with over 1,000 employees. Companies must now learn to adapt (and quickly!) or die.

It still doesn’t make it any easier of pill to swallow. But, it does slap you in the face enough to re-asses your bidding and business qualification practices.

Due Diligence

Since we typically complete due diligence (financial health, continuity planning, etc.), should we be doing some of these things upfront? Or is there a more efficient way to try and discern from the companies who are on the brink of bankruptcy?

If having a positive income statement was a requirement, I wouldn’t have suppliers working with me. Therefore, just because they are operating at a loss, doesn’t necessarily mean they will go belly-up in the near future.

Now, most of my finance professionals might disagree, the cash flow statement, P&L, and balance sheet aren’t the end-all-be-all in assessing a company.

The quick ratio and other financial ratios can give you insight into their ability to pay back their debt. And in the same breath, they could miss new potential income that isn’t on any of the statements.

Let’s not forget – if the suppliers are small, private businesses – getting access to this information may be out of the question.

I would argue, although there are financial indicators, that’s all they are – indicators. They can’t always give you the entire picture. So this may be a small part of a larger solution (if you have the time for it).

Risk Mitigation

So we obviously need more specific information to go back and assess a supplier quickly, prior to an RFP or new engagement. So what else can we look at to understand if there is any business impact resulting from COVID-19?

In category management, you’re supposed to look at risk and potential business impact, which includes taking a good look at the current industry analysis. Which is only useful if you have market research or benchmark information up to date. Things are changing quickly, including the industry so you would need real-time information to be useful.

Again, I don’t think this will be a crystal ball into the viability of the supplier; but, coupled with financial analysis it might give us some context. That said, that’s a LOT of work going into an RFP.

Other Suggestions

Just ask them. Although this may seem like a good idea from the outside, you may not get a supplier who is willing to be transparent and share this information. And who is to say that they would be privy to this information anyways?

Ownership changes or Employees Leaving. Now if you do a quick LinkedIn search and see the majority of the staff have left or been laid off, you might want to stay away. Not all companies can manage with a lean workforce. Especially if it’s the CEO.

Hire a private eye. What could go wrong if you wanted to follow around some executives from another company? Seems completely reasonable to me.

The Final Business Impact Assessment

There are a lot of things you could do prior to an RFP that would help figure out if a company is going to be close to going bankrupt (which would take a lot of time). So if you have a big team, you may have your solution!

But if you are part of a lean organization, not so much. If I have 5-6 RFPs at the same time, they all want to engage in 5-10 suppliers each, I’d have to hire a temp. to cover all this pre-work knowing only one would make it through. Which makes for a lot of wasted time and effort.

So if you are in the same position and know of a solution, please share! Aside from sticking with incumbents, I would love to hear new ideas from some of my fellow professionals in the industry.