COVID-19 has now been officially classified as a pandemic. As the virus spreads and the negative economic effects multiply, CEOs need to act—to manage the immediate crisis, but also to address the vulnerabilities that COVID-19 has exposed. John Jullens, a principal in KPMG’s Strategy practice who worked for many years in China, provides actionable ideas about how to respond to the crisis.
The first priority is to make sure that employees are safe. Then business leaders must protect their businesses from the supply and demand shocks—as parts and finished goods stop flowing from affected areas, and as consumers pull back. KPMG’s chief economist now forecasts a recession starting in the second quarter and continuing through the first quarter of 2021.
But CEOS face a long-term challenge, too. They should understand that this is not a one-off. Nor is this just about China. The COVID-19 crisis exposes the systemic risks inherent in how global businesses operate. By creating super-lean, just-in-time, global supply chains, companies have increased efficiency and made it possible to serve customers in all parts of the world. But, as COVID-19 has made clear, the hyper-efficient, low-cost-country supply model is not resilient. When the epidemic hit and supply lines were threatened, few companies had sufficient backup supplies or redundancy in their supply chains.
It’s time to rethink global strategies to be more resilient. There will be more low-probability/high impact events--disease outbreaks, severe weather events, earthquakes, and social unrest. By making risk management part of strategic planning, companies can routinely simulate how such events—as well as other variables--could disrupt their businesses and use those insights to design footprints and supply chains that will stand up to the realities of global business today.