Coronavirus

Supply Chains And Black Swans: Planning For A Global Crisis

Supply Chains, Black Swans: Planning For Crisis

To be ready for the unexpected, “One approach is to branch out into new markets. This hedges against the risk of losses if a single market or region is heavily impacted,” Payoneer CEO Scott Galit told PYMNTS. “And, as always, having supply chain redundancy is critically important. Businesses learn quickly in a crisis which partners are well-managed and which are not.” Read about Payoneer’s response to COVID-19 in Black Swan, a special report exclusively from PYMNTS.

The following is an excerpt from Black Swan, contributed by Payoneer CEO Scott Galit.

Supply Chains and Black Swans: Planning for a Global Crisis

As we are in the grip of the COVID-19 epidemic, it’s not easy to say with certainty what lies ahead. Hindsight is 20/20, and we simply aren’t there yet. However, there is one lesson that is already becoming clear from 2020’s black swan event, as businesses safeguard against future disasters — in our interconnected world, one cannot be prepared for the worst without taking into consideration the disruption of both supply and demand.

When the coronavirus first began its spread in China, the biggest impact was on supply chains. With workers mandated to stay home, Chinese factories and businesses were at a standstill. Still, there were some factors preventing total shutdown. Many merchants had increased inventories in preparation for the upcoming Chinese New Year. This gave them some cushion as production slowed. Others were quick and creative in finding alternative sourcing from areas as yet unaffected by the epidemic.

Next came challenges in logistics. Flights out of China and customs processes were slowing. To mitigate losses, marketplaces eased policies to protect sellers in the case of delivery delays, and some waived refund fees. Payoneer worked with online sellers to help them identify new suppliers, infrastructure partners and routes. The focus was on getting supply chains back to normal, and over the course of two months, these steps did lessen losses. Sales volumes in February dropped, but by less than the 20 percent to 50 percent feared by Payoneer’s surveyed sellers.

However, a new problem is now arising. As the coronavirus has moved into the rest of the world and is now ravaging Europe, the U.S. and beyond, attention has turned to demand. Here, much is still unknown. On the one hand, it’s clear that many consumers are avoiding retail stores and are instead shopping online. There are also theories that people could increase online shopping, as they’re sitting at home with little to do. On the other hand, people may start limiting discretionary spending as the economy and work slows down. Payoneer’s preliminary sales volume numbers for March indicate growth, but as stock markets tumble and uncertainty and disruption increase, this situation could quickly change.

What is clear is that businesses can’t afford to be completely unprepared for black swan events. One key principle that most businesses deeply understand is that “cash is king.” This is never more true than in a black swan event. Understanding what financial levers are available to maximize cash and minimize burn in times of crisis is critical for businesses of any size. The main goal for most is to survive and emerge from the other side of the crisis with enough resources to benefit from the eventual bounceback.

Other strategies focus on diversifying risk on both the demand side and supply side. One approach is to branch out into new markets. This hedges against the risk of losses if a single market or region is heavily impacted. For businesses selling goods, diversifying product categories can also help protect against supply chain interruptions. And, as always, having supply chain redundancy is critically important.

Businesses learn quickly in a crisis which partners are well-managed and which are not. Not all are equal, that’s for sure. When a crisis hits, having options can be critical to maintaining stability. We have learned quickly that all businesses must ensure that they are prepared for extended work-from-home periods, investing in the technology and setting up procedures for remote work and lower worker turnouts and productivity.

While these are very distressing times, it is almost inconceivable to imagine how we all would have managed through a crisis like this even just a decade ago, without the technology that makes working from home possible (and effective), and the eCommerce that enables us to get so much of what we need and want delivered to our homes. Digitalization has been driving these global trends of remote work and commerce for quite some time — and the current crisis is actually amplifying these existing trends.

As we navigate the uncertain waters of this world health epidemic, we face a stark reminder of the importance of planning ahead. Now is the time to ensure that we learn from the current crisis and that we will be better prepared for the next unpredictable – and inevitable – event.

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NEW PYMNTS DATA: HOW WE SHOP – SEPTEMBER 2020 

The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.

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