Here are the two forces that any company must have in a context that is becoming more uncertain every year: Brexit, Covid, blockage of the Suez Canal… In 2022, the Ukrainian crisis will reinforce the tensions already present in French companies with in particular the increase in the cost of raw materials and supply difficulties.
Fabrice Keller and Guillaume Masseron, partners at June Partners, an operational consulting firm that supports companies in their transformation, clarify the situation.
Given your proximity to business leaders, how does the current global environment affect them? What have you seen in recent months?
After the sudden halt in global production due to the Covid crisis, the recovery led to overheating, generating higher prices and longer supply times. We could have envisaged a return to normal, but the war in Ukraine has suddenly exacerbated these problems. Inflation for energy and raw materials is racing (+120% for gas, +100% for steel and +55% for wheat, for example). This price increase is accompanied by shortages (construction materials) and an extension of supply times (tensions on global freight).
Hence the need for companies to monitor their activity as closely as possible, and to better manage their logistics flows and their WCR. A very concrete example to illustrate this need to anticipate these exceptional phenomena: a distributor of medical equipment from Asia was confronted with two problems. On the one hand, the lead time has been lengthened due to maritime transport from 60 to 80 days. And on the other hand, he had to face an exceptional price variation. Purchase prices were multiplied by five during the Covid crisis before being divided by five for 6 months to return to normal. In this context, it was essential to control its purchases as well as possible, to succeed in reversing the increase in purchase prices to customers and to manage supplies. In addition, it was necessary to carry a much heavier stock for an additional month due to the transport time. Consequently, the value of the stock increased sevenfold. This resulted in much greater funding requirements.
Concretely, what can companies put in place to manage these uncertainties?
It is important that they gain agility and anticipation. To do this, we help them create different scenarios and carry out a sensitivity analysis to predict the evolution of profitability, anticipate cash requirements and adapt their action plan accordingly.
For example, the creation of several supply scenarios is a way for them to benefit from the best prices for their “sourcing” before a new exhibition. This also requires better coordination with retail sales forecasts. But also by increasing the variability and flexibility of their production tool with a better distribution of own staff and temporary workers while promoting the annualization of working time.
The objective is to ensure the management of companies at all times to deal with developments that remain unpredictable.
Finally, the establishment of an appropriate financing plan, generating leeway, is essential, especially when working capital becomes increasingly burdensome.