Deep Dive: Reinventing Supply, Demand And Purchasing In The COVID-19 Era

The COVID-19 pandemic’s impacts are already being felt across various business sectors, and efforts to reduce its spread are sending ripple effects through supply chains and shifting B2B and consumer-to-business (C2B) payment practices. Business buyers are seeking extended payment deadlines from their vendors, retailers are requesting that consumers avoid paying with cash, which can transfer bacteria and viruses, and consumers are increasingly shopping online to avoid crowded stores.

Plenty of systems outside payments are also being affected, resulting in massive in-house strategy shifts. Hospitalizations, deaths, quarantines and social distancing efforts have led to permanent closures, and 25.9 percent of SMB owners expect their companies to fail because of the pandemic. This will significantly impact not just livelihoods but also the number of partners with which companies can work. The COVID-19 pandemic has also forced businesses that are still in operation to rethink how they handle day-to-day functions, with many asking employees to work from home and adopting new digital tools.

This month’s Deep Dive examines the ways the pandemic is impacting how goods are produced, paid for and consumed.

The Pinch Of Interrupted Chinese Production

Companies dependent on China for products or raw materials have experienced disruptions since the virus emerged, shut down factories and sent workers into quarantine. Such closures have had major global impacts: More than 1 million Amazon merchants rely on Chinese manufacturing, for example.

The virus’s spread has limited corporate buyers’ abilities to readjust their B2B supply chains. There is little certainty that vendors outside China will be spared, as it would take time for alternative suppliers to build up production for new clients — even if they could remain safe from the virus’s impacts. Pandemic-related disruptions in China are likely to impact household goods, textiles and technologies, including semiconductors and telecommunications tools.

The damage to normal supply chain operations have hit smaller buyers with fewer available financial resources hard, but larger companies are seeing problems as well. Technology giant Apple’s main manufacturing partner closed, for example, and the company now expects it will ship 10 percent fewer iPhones in Q1 than previously anticipated.

Automotive companies that rely on Chinese manufacturers to produce their vehicles, plastics and related technologies, such as BMW, Tesla and Volkswagen, have all felt the impacts. Some estimates project a 15 percent decline in China-based car production during Q1, as well as a decrease in consumers’ interest in purchasing the vehicles. U.S. consumers are coping with uncertain incomes — 701,000 jobs were lost in March alone — and many car retailers’ physical operations have shuttered under state orders. Change may be on the horizon, with China having mounted a tentative recovery and reopening of some of its factories in March.

Floundering Global Demand

The road to global recovery may not be simple, however, because newly revived Chinese factories are being confronted with weakened demand from their traditional clients. Production activities have come online at a time when purchasing has fallen in European markets that are now experiencing the pandemic.

Overseas buyers have canceled or suspended orders from Chinese manufacturers or sought payment timeline delays, with some pushing deadlines by two months. Textile factories in the Keqiao, Shaoxing district resumed activity last month, but 65 percent said previously placed orders were canceled and 78 percent reported a decline in purchasing. Such effects are likely to be long-term, with one economist projecting that China could suffer a 10 percent or greater annual decline in exports.

Other countries are facing similar issues as consumers conserve their financial resources for necessities. Social distancing and the closure of nonessential retailers is also dampening demand. Bangladesh supplies much of the world’s apparel, for example, with such products representing 84 percent of the nation’s exports during fiscal year 2019. Major fashion retailer closures in other countries have so far caused one Bangladeshi trade association to report $3 billion worth of purchases evaporating — all orders were canceled or put on hold until July. The U.S. movie theater industry has seen similar declines, registering a 69 percent year-over-year drop in sales for March 12 through March 19. Some movie studios are therefore revising their approaches to be able to keep selling during this time, offering new releases digitally.

Public Safety Measures Spur eCommerce

Demand in eCommerce is ramping up, however, with a Feb. 28 study of U.S. internet users finding that 74.6 percent would avoid shopping centers if the COVID-19 outbreak were to “worsen” and that 52.7 percent would avoid brick-and-mortar stores. More than 85 percent of U.S. shopping is typically conducted in stores, and it is thus likely may disappear while other transactions shift online. Data from mid-March suggested that consumers would increasingly use order-ahead for pickup options to enable shopping while avoiding exposure to infected shoppers and the virus’s presence on items in the retail environment. Companies are also tapping delivery services for all manner of items, including groceries and drug store goods.

Social distancing could produce permanent behavioral shifts among consumers by inspiring eCommerce use among those who had not previously tried it, prompting them to form new shopping habits. Older consumers are particularly vulnerable to COVID-19, and many have not adopted eCommerce purchasing. Being able to receive necessary goods, prepared meals, medications and more delivered safely and conveniently to their homes may convince them to keep up with online and mobile ordering long after the pandemic has run its course.

The rising need for digital services could prompt businesses to change as well. Serving high eCommerce demand could require online retailers to adjust their strategies and move away from two-day delivery promises, for example, or ease purchasing for financially stressed consumers with installment payments.

A Digital Payments Push

Health concerns could impact not only when or how businesses and consumers purchase but also which payment methods they prefer. Concerns about the virus lingering on physical objects have reportedly prompted some consumers to become wary of exchanging cash and cards between cashiers and their wallets. WHO has recommended contactless payments for this purpose, while South Korea and China are holding all cash from central banks under temporary quarantines to kill any virus before releasing it into circulation. B2B transactions could see similar shifts away from paper checks and invoices, especially as AP and accounts receivable (AR) teams are largely working from home and not in the offices at which they normally handle them.

Weathering this unpredictable pandemic may require businesses to be open to looser payment timelines as well. COVID-19-related complications could cause difficulties for buyers making payments, and suppliers may find it advantageous to give small business partners leeway to help them stay afloat. Payment delays are unlikely to be easy on suppliers, however, as they still need to maintain smooth cash flows to afford their typical production levels. Too many late payments could impede their abilities to deliver on demand.

Rallying Around New Needs

Firms may find long-term planning especially difficult with so much of the world’s economy in flux, yet they must work around this limitation. Doing so could include deploying digital cash management tools to help corporate treasurers quickly respond to hard-to-predict financial and supply chain shifts. Access to real-time data could better equip them to respond, too, should vendors become unable to sell normal quantities of goods or if quarantines significantly disrupt logistics.

Companies readjusting their business models may take other steps to improve their stability as well, including diversifying their supply chains, handling more production in-house, cross-training staff to ensure employees can take over for those who are sick or quarantined and focusing more heavily on the most-demanded necessities while deprioritizing other items. These measures can ensure companies meet their core needs and have backup plans ready when disruptions hit, better preparing them to keep operations running as smoothly as possible.

The COVID-19 pandemic is causing unprecedented and unpredictable disruptions to global supply chains, commerce and payment norms. Companies will thus need to be flexible and forward-thinking to manage their operations in these difficult times. The challenges are real, but so are the possibilities for learning and improving. Businesses that rally and retool will be much more equipped to handle surprises in the future and will likely exit this crisis stronger and more resilient than before.