Managing under crisis mode Actions for CP & Retail as COVID-19 - PowerPoint PPT Presentation

Managing under ‘crisis mode’ Actions for CP & Retail as COVID-19 unfolds March 2020 D R A F T

We are firmly in phase two. Retailers & CPGs need to adapt their planning and operations to deal with the disruption, but also look ahead and plan for the recovery P H A S E O N E P H A S E T W O P H A S E T H R E E Emerging Situation Rapid escalation Recovery & Beyond The situation progressively Virus is present, but has not yet Virus is quickly spreading impacted a large population returns to (a new) normal Governments take restrictive Competitive positions and Day-to-day life is still mostly actions to contain virus “normal” customer relationships may Retail operations & CPGs have been significantly altered Government has not taken supply/demand strongly action impacted – Retail that remains open is Variable public sentiment, overloaded with stock-outs etc. “it’s just the flu” – Retail that is forced to close, must focus on protecting cash UK is acting as if in phase 1 Most of Europe is in phase 2 China is starting to emerge into recovery Parts of US are in phase 1 Parts of US are in phase 2 2 HKG 200318 - Bain & Co - COVID 19 ...

We have clarified six urgent imperatives for all Retailers & CPGs. In phase two, focusing on operations and cash is key P H A S E O N E P H A S E T W O P H A S E T H R E E Emerging Situation Rapid escalation Recovery & Beyond Rapidly mobilize an 1. Emergency Response Team 2. Protect people as the utmost priority 3. Put operations in “ crisis mode ” 4. Save cash to adapt to new financial realities Plan to emerge from 5. the crisis stronger 6. Communicate and collaborate internally and externally 3 HKG 200318 - Bain & Co - COVID 19 ...

A G E N D A Action plan Action plan Experience share for retailers for CPGs and Q&A 1 2 3

3. Put operations in “crisis mode” : Four key areas to consider Store Supply Online DC & operations Chain fulfillment logistics Continue to prioritize Monitor risks & supply Rapidly scale up existing Adapt DC operations to health and safety: day-to-day online offering: heightened risks: – Store cleaning efforts, – BOPIS/Click & Collect – Identification of areas of Ensure continuity of minimal manual handling increased capacity key risks supply : – Minimum physical – Increased IT investments – Collaboration with – Local sourcing in key distance & limited number suppliers on critical items – Partnerships with 3 rd categories of customers – Back-up staffing plans parties for online delivery – New suppliers – Special opening hours Adjust operations to Increase logistics Re-assess assortment: increased online flexibility and mitigate Adapt operations as – Simplified assortment demand: impacts to transport: workforce shortages among categories – Re-allocation of labor – Identification of potential mount : – Adapted packaging type lockdown areas – Temporary labor hiring – Back-up staffing plans – Transport and delivery Focus on getting – Store repurposing into – Non priority aisles closed plans revised “dark stores” products to stores – Limited assortment – Temporary consolidation Adjust promotional Shift marketing spend to of operations activity online channels 5 HKG 200318 - Bain & Co - COVID 19 ...

4. Save cash for survival: Cash management levers and considerations Ensure Define the scope of savings levers Develop concrete plan for when to executive mind activate “break glass” initiatives that are on the table shift to cash “ Hand- brake” levers examples “ B reak glass” levers examples • Model impacts and run scenarios , with a focus To be activated at defined crisis milestones; on cash (dedicated Near-term actions to implement to clear owners and implementation plan team) mitigate cash crunch attached • Ensure C-suite is fully conscious of new constraints • Freeze/adjust not operationally-critical spends • Implement salary cuts or benefits freeze & CAPEX • Ensure Finance • Accelerate planned HC reductions tightens/loosens • Stop non-critical third-party engagements where relevant • Execute permanent store closures or exits from • Extend payables with suppliers to preserve cash some geographies • Draw down on all existing lines of credit • Freeze all non-business critical spend (e.g. maintenance) 6 HKG 200318 - Bain & Co - COVID 19 ...

Phase 3: When emerging into recovery, retailers will have to adjust in-year and longer term plans, as well as make their business more resilient to future shocks …Looking ahead, they should adjust long In the early stages of recovery, retailers should adjust in- year plans… terms plans and increase their resilience Understand what’s changed and re -define your 1 1 Prepare to welcome back staff and customers strategy • Don’t expect to immediately return to “business as usual” • Maintain basic safety & hygiene measures • Investigate areas of market gains/losses • • Over-communicate on how health issues are prioritized Develop commercial revitalization plans to reactivate demand • Develop investment plans to address increased omnichannel demand 2 Analyze the response and codify key learnings 2 • Adapt your capabilities and network to meet new Learn from this shock to make your business more resilient • Keep the Emergency Response Team active to conduct a full debriefing demands and codify their knowledge • Review supply chain and logistical setups • Review buying strategy, relocate supply/production as needed • Design network redeployment plans 3 Review stock levels • Review the role of automation in the supply chain and in stores • Adjust inventory levels for stock-up categories • Gradually re-instate automatic or algorithmic systems Evaluate long-term cost position and build financial 3 resiliency 4 Refresh & restart 2020 plan • Lay out a clear path to continuous cost improvement and productivity • increases Set new objectives, budgets and operational plans • Ensure robustness of balance sheet 7 HKG 200318 - Bain & Co - COVID 19 ...

A G E N D A Action plan Action plan Experience share for retailers for CPGs and Q&A 1 2 3

Quickly review and adjust production plan and inventory management • Look beyond your own operations for • Identify weak links in overall supply spare capacity (e.g., co-manufacturers), chain, and address them in order from holding them to the same increased least to most resilient safety standards • Quickly shift production plans based on demand • Stay vigilant with raw materials – Scale up for high-demand products, best- suppliers selling ‘hero’ SKUs, and formats for high - – Watch for increasing lead times demand channels (e.g., online) – Develop contingency plans for alternative – Scale down (or turn off) for low-demand (or excess) sourcing products, rotational/fill-in SKUs, and formats for low-demand channels (e.g., on-trade) • Manage inventory closely • Diversify manufacturing to hedge risk – Increase stock levels for high-demand – Split production across countries, plants, items, and vice versa teams to ensure continuity of supply in case – Move inventory as close to the market as of an isolated outbreak possible, as fast as possible – Embrace flexible production and – Halt algorithms that are unsuited to current deployment of inventory demand patterns 9 HKG 200318 - Bain & Co - COVID 19 ...

Turbocharge logistics flexibility • Diversify transportation and distribution providers to hedge risk • Work with authorities to understand potential ‘lockdown’ areas, and plan for – Try to use different providers to service different warehouses and distribution advance deliveries to those locations centers, to mitigate risk of transmission or local outbreak • Be agile with logistics – consider: • Focus on getting stock as close to – Working with retailers to see if backhaul or stores as possible – this may mean new customer pickup opportunities exist interim tactics, such as direct store – Leverage joint capacity with competitors delivery (DSD) – Explore third-party on-demand logistics providers and ‘less -than- truckload’ shipping • Free up freight capacity for high- • Ensure that all external logistics demand items by stopping deliveries of non-essential categories and providers adhered to elevated hygiene aggressively enforcing minimum freight standards and safety protocols orders 10 HKG 200318 - Bain & Co - COVID 19 ...