We open this space, where experts retailers will share their views on how to deal with the current crisis situation.
Our fourth guest is Luigi Galli, COO in Farmacias del Ahorro.
Farmacias del Ahorro is the number 1 pharmaceutical chain in Mexico, dedicated to providing health services, which has more than 12,000 collaborators.
HOW SHOULD WE COPE WITH THIS CRISIS FROM THE RETAIL PERSPECTIVE?
We face a very tough reality, as many companies will fold over the next few weeks.
A crisis always presents itself like a thorough examination or an X report, where we submit the accounts, decisions and actions we’ve taken previously. Indeed, this quarantine has one effect that is very interesting to observe: it amplifies and magnifies things, meaning that if our relationships are tepid, this crisis will cool them completely, if our finances are or have been neglected it will exhaust them easily, and if our communication or leadership are mediocre, people will abandon us.
Much is being said and speculated about this crisis, but there is one observable truth, which is that this pause not only defines us and exposes us for what we are but, depending how we are living it TODAY, this is how we will come out of it: strengthened and focused or weakened (this is if we survive) and uncertain where we are bound.
Let’s take it on: we aren’t all in the same boat, just in the same storm, and there are as many destinations as there are ships and good and bad captains. In this gloomy scenario, the good news is that if you are reading this, there is still a chance to do a volte-face in your company.
Where do we start?
We always recommend to our clients that they should separate this crisis into two moments and deal with them independently. Each has its own rules, particular challenges, timescale, objectives and conditions.
The first moment, indispensable for getting to the second, is what we are already living and the objective here is very easy to guess: survive! trying to as well as possible, while with the second moment of post-crisis activity in mind.
Although the two moments are profoundly interconnected, on this occasion we will focus exclusively on the first one and leave open the possibility that we find ourselves in the short term coming up with a few thoughts and ideas around what we must or can do once we are released from quarantine.
What is the most important thing to do during quarantine?
We General Managers know there aren’t any exact formulas and executives work with probabilities, that is, we incorporate all the tools which, taken together, will improve the likelihood of success.
The list below is the outcome of a number of reflections made with the best consultants, who agree on the following points as critical factors for tackling the crisis or, in other words, the factors which improve the probability of survival.
It should be said that the following 5 elements have been proven over and over again at the companies we work with, and with highly positive results. Some, as you will see, are simple and common sense, but this does not mean they lack the effectiveness and robustness required right now.
1. Cash-flow control
This is perhaps the most important indicator now. The cash projection (not to be confused with the income statement) is fundamental to learning what I call the weeks or months / life expectancy of the company. If the cash runs out, the situation is very delicate and the chances of going bust are high.
Visibility of this is critical and lets you identify immediately the inflows and outflows making it up and take decisions or actions, whether to raise them (income, trying to boost sales, obtaining credit lines, selling assets, factoring, etc.) and/or reduce them (outgoings, whether by deferring, cutting, renegotiating or postponing).
Each decision we take about the flow will let you increase or decrease your cash. The objective here could be to ensure cash-flow which lasts at least three months.
The crisis forces us to define the most important issues and invites us to a reflection which will end up prioritizing them for the difficult decisions which will probably arise. Having this list and this analysis is crucial.
It is fundamental, for example, to prioritize the relative importance of clients. If we only have enough inventory to fulfill one order, it is valuable to know which client we are going to assign it to and prefer to retain (aside from apportioning orders, it is always important to prioritize, and let me be clear that it is not always by volume purchased).
What has to be prioritized? In principle, the 3 key elements in the relationships of a company: Clients, Suppliers and Employees, as well as the product portfolio. In any crisis, Senior Management has to understand this clearly for the best and most effective decisions to be taken.
3. Relationship management
This quarantine, setting aside the economic and health impacts, is giving rise to a very important emotional crisis which magnifies the reactions to our actions or lack of them. It is fundamental to secure the relationships with the three groups just mentioned. A call just to see how things are and explore what joint actions could be put in place could be highly appreciated today.
It is not just looking out for them and making our clients, suppliers and employees feel we are close, but it is also recommended to observe systematically how the competition reacts: their statements, their price strategies, promotions, etc.
4. Communication protocol
Along with this home office idea, few companies have really implemented a proper remote communication protocol including not just hours, dynamics and procedure, but also the topics of infrastructure and security.
As a start, it is recommendable to look at bandwidth, as this mode of communication can saturate it.
It is an excellent moment to make whatever can be varied variable and look for flexibility in each process we now have. Crises tend to accentuate any kinds of rigidity and organizations are not immune.
Reviewing the policies, culture, rituals, business model, etc., with the lens of flexibility tends to open up extraordinary possibilities. This can also be applied to the topics of leases, home delivery, layout and stock on the sales floor, product portfolio, etc.
Written by: Luigi Galli (COO en Farmacias del Ahorro)