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Start planning in waves

The virus sets the pace first. With its apparent origin in China, it was the Chinese market which was first affected by lockdowns and other safety measures. As the virus spread so did the economic impact. But it might only be the first wave. Some markets are recovering, others have just shut down. Sophisticated wave management models are now required.

Time delay within the supply and demand chain will bring us into a double five-month wave effect with fluctuating capacity utilisation:

  • The first 4-6 weeks: a near shutdown running at a capacity of max. 10-20 percent.
  • next 4 weeks: gradually ramping up production to 50 percent
  • next 4 weeks: increasing production up to 80 percent capacity level
  • following 1-2 months: back to 90 percent utilisation plus catch-up effect, if demand can be stimulated
  • if demand side can't be stimulated, we will enter into a much deeper recession dropping down to 70-80% again, which will lead to much more fundamental changes the following five months, finally adapting production capacities to the new normal demand.

The shift to top-down risk management and quicker scenario planning 

The scenario depends very much on government subsidies and customer uncertainty within the market. It is essential to stay informed about government decisions not only concerning safety measures but also about stimuli, changes in subsidies and tax rules. While governments and central banks make all efforts to mitigate the virus effects, industries will not be able to survive a similar second coronavirus wave with the same restrictive lock down consequences.

The high impetus of policy decisions demands a shift in risk management. Flexible and quicker scenario planning and budgeting are needed, switching from a bottom-up approach that takes several months of planning to weekly top-down planning exercises using digital tools and mass data.

In summary 

This crisis will transform industry at high speed in two waves implication like a perfect storm, we have not seen since many years. To manage this storm, sophisticated wave models are necessary, with a top-down risk management approach that is very much on top of government subsidy programs and other economic policy decisions.