1. Boost liquidity by pulling specific operational levers to aggressively reduce working capital
2. Identify and protect profit-generators in your business
3. Develop a set of cost-out options and associated operating models; launch “no-regrets” moves
Right now, the business world is holding its breath. It’s not clear exactly when we will shift from crisis to recovery, but it is certain that businesses will be changed by this experience. It’s a safe bet that in the near term, most businesses will see lower revenues for multiple quarters and face liquidity challenges. In the longer term, they will need to not only rethink annual targets but also the viability of pre-COVID-19 operating models.
Below, we highlight three critical levers for navigating through this crisis. For each, the urgent upfront work is to build out the plan, which we can do working remotely with your team.
1. Aggressively boost liquidity through operational levers. Companies will tap credit markets, but most will also need to learn to manage with less cash. Fortunately, there are many specific, operational levers for companies to consider. For example, minimizing cash tied up in inventory by: adjusting customer policies, stratifying inventory targets, enabling factory-direct fulfillment, leveraging distribution, moving to make-to-ordering, deepening supply-base collaboration, and so on.
- FIRST STEP: Leverage WP&C’s set of liquidity strategies to unlock capital by reducing complexity. Size the overall opportunity and liquidity lift, and launch “no-regrets” quick policy changes. Completed remotely.
2. Identify and protect profit-generators in your business through our Square Root Costing methodology. Profit-generators are the 20–30% of products, customers, etc., that generate more than 300% of your profitability. In other words, 70–80% of your products are consuming cash with no returns! In the pre-COVID-19 world, most companies were fine managing to an aggregate gross margin, but this is no longer tenable. Now, more than ever, you need to quickly gain a true picture of product and customer profitability in order to focus (or defocus) time, cash, and capacity, as well as more confidently cut costs.
- FIRST STEP: Deploy WP&C’s “quick cut” Square Root Costing methodology, develop an initial view of true value-generators, and launch your intervention plan. Completed remotely.
3. Develop a set of cost-out options and associated operating models; launch “no-regrets” moves. Given the current uncertainty, the onus should be on developing cost structure alternatives for a post-COVID-19 world and executing no-regrets cost reductions. At the heart of this is identifying the 2–3 operating model alternatives and related cost-structures, tied to different business outcomes, and determining the triggers to execute on each. Most firms will require significant complexity reduction in their businesses, hitting organizational, process, and product/service dimensions.
- FIRST STEP: Sketch out the range of operating models/cost-structures and associated triggers in a “clean sheet” exercise. Identify the “no-regrets” cost-reduction actions common to all options and begin implementation. Primarily completed remotely.
WP&C is committed to helping our clients as they steer through this unprecedented environment. We are here to help. WP&C was launched coming out of the Financial Crisis of 2008, and many of the lessons from Waging War on Complexity Costs, written at that time, are relevant today.