Savvy entrepreneurs are planning ahead to mitigate the effects of supply shortages and sick employees.
When the 12 China-based employees of private-label sock manufacturer PAC-MFG return to their office on Monday after a two-week quarantine of the city of Haining, things will be a little different. Buses and trains are hot spots for transmission of the coronavirus, so the company has conscripted its in-house driver to pick up car-less workers and ferry staff around the city for quality-control inspections. PAC-MFG also will hand out ear thermometers and require employees to report their temperatures through a new company social media group. Even the bathroom has changed. Most sinks in China dispense only cold water. PAC-MFG just installed a water heater to amp up the disinfectant power of hand washing.
The coronavirus, which is pummeling stock markets and kinking supply chains worldwide, is particularly dangerous for small-to-midsized businesses, which tend to operate on shorter lead times and have all their manufacturing eggs in the China basket, says Hitendra Chaturvedi, a professor of supply chain management at Arizona State University. “I believe if the coronavirus impact goes beyond March many SMEs will have to shut shop,” Chaturvedi says. Even small companies without direct exposure to Asia are threatened as the epidemic rushes west and the potential for employees to get sick increases. So now smart small-and-mid-sized company leaders are trying to mitigate the coronavirus risk with a variety of tactics, such as conserving working capital, crafting work-at-home policies, and communicating frequently with vendors and customers.
Some businesses have designated point people–coronavirus czars, in effect–to oversee their efforts. At PAC-MFG, which in addition to its China workforce employs six people at its San Diego headquarters, that person is the assistant to CEO and founder Harold Robison. The CEO’s assistant “is looking at anything we can do to reduce exposure that doesn’t affect mission-critical work–even if there is a little extra cost,” says Robison, who anticipates the epidemic will ding 2020 revenues by about 15 percent. “We are expecting to overreact the first month.”
Director of Technology Ryan Dolley acts as coronavirus specialist at PMsquare, a 33-employee data and analytics company in Oak Brook, Illinois. Dolley posts updates about the virus’s spread on Slack; another employee created a dashboard there tracking such data as rates of infection and mortality, to keep staffers informed.
On Dolley’s recommendation the leadership team recently drew up a list of infectious disease outbreak policies, such as the temperature above which employees must stay home (100.4 degrees) and what to do if someone falls ill while traveling. The team also created an additional benefit allowing for sick days that don’t count as paid time off. Employees are required to check off every item on the list to indicate they’ve reviewed it. “We used CDC’s guidelines and customized them for our business,” says Dustin Adkison, PMsquare’s managing partner. “We’ve also bought hand sanitizers for the whole office and asked the cleaning crew to begin doing surface area sanitation instead of just wiping things down.”
Of course many companies already have work-from-home policies. But those aren’t helpful when staffers are too groggy to peck at a laptop. MBX Systems, a 180-employee company in Libertyville, Illinois, which makes hardware for applications ranging from flight simulation to surveillance, got a taste of that months ago during a two-week period when 15 engineers succumbed to the flu. Fortunately the company has a well-thought-out contingency plan that Chief Strategy Officer Justin Formella says should protect it if the coronavirus breaches its walls.
Leaders at MBX have assessed the minimum staffing levels required for each department and identified employees who have been cross-trained to fill in for those functions. The company also determines what work will be eliminated or deferred if staffing levels drop. “You might decide to cut new initiatives and go into a sustaining posture,” Formella says. “It should be automatic that if today we only have five people instead of 10, everyone knows that these are the things we will focus on.”
Supply chains, which take time to diversify, present a more daunting problem. MBX sources raw materials and components from many vulnerable countries in Asia. Starting in mid-January the company began rapidly building up inventory and working with customers to do the same, urging them to forecast out to the second quarter and beyond. MBX has also been firm with suppliers about reserving its spot in line to buy new inventory as it is produced. “We have to do this in advance of the shortages, which at this point are anywhere between now and four weeks away,” Formella says.
A 25-year-old, $100 million company like MBX has sufficient sway with suppliers to get much of what it needs. A fragile startup with no employees does not. Mike Bradford, founder of Atlanta-based Wonderflle has been producing irons customized to make stuffed waffles out of two factories near Shanghai for less than a year, and selling out each run. He was waiting until March to place his next order and now is not sure whether the manufacturers will accommodate his scant volume.
Bradford says he will consider moving operations should problems spill into the summer. Fortunately he arranged Chinese production through a contract manufacturing service that has partnerships in India and other countries. That should make any transition easier. “If it looks like there will be significant delays they will help me as far as moving materials to another location,” Bradford says. “But I have spent a year learning how things work in China, and in India I would have to rebuild.”
Jennifer Randklev can’t afford to wait and see what happens. Randklev is CEO of the second-generation family business Penguin Patch Holiday Shop, a Fort Worth, Texas company with revenues under $10 million that provides materials for gift-selling events at schools. With 100 percent of revenue dependent on a few weeks in December and 100 percent of products coming from China, the business has no margin for error. Randklev had planned to visit China in February to finalize packaging and approve production samples at many of the 15 factories in Ningbo where she manufactures. But the factories told her not to come. Things were bad.
Production in China typically takes 60 days for a company like Penguin. Randklev anticipates that stretching to 90 days or longer. Worried about future delays and complications, she decided to move her entire production process up six weeks. “I have dropped all other aspects of my business just to work on placing my orders with China” as soon as possible, she says. Those orders are based in part on Penguin’s existing inventory, comprising thousands of items not sold in its holiday shops last year. Normally employees have until the end of March to conduct a count of all those products, but this year Randklev had to hire additional workers to get it done faster. With staffing agency fees, the 10 or so extra hands cost her at least $50,000. But they finished the inventory early this week, increasing the odds she’ll get the shipments in time for holiday customers.
Keeping customers informed
Anticipating shortages for Cool Beauty Consulting, a 22-employee supplier and consultant serving salons and barber shops, founder Bennie Pollard has been padding his usual 45-day inventory of hair colors, shampoos, and shears to 60 days. His other Louisville, Kentucky-based business, Nova Salons, faces a different problem. “Hairdressing is a very intimate and touchy industry,” Pollard says. “So you have to let the customer base know you are very much involved in increased sanitation.”
To do that, last Thursday Nova emailed several thousand customers talking up his two salons’ existing cleanliness practices, which are being reinforced with beefed-up training, and enhancements like additional hand-sanitation stations. The note includes a list of personal best practices (“Don’t share food or drinks. Cough and or sneeze into your elbow”) and also politely asks anyone who feels ill to reschedule their appointments, to “protect our staff and all our lovely clients.”
“Service businesses already do some preventative measures around things like cleanliness well,” Pollard says. “So there is a slight marketing benefit to reminding customers: We care.”