Look Beyond 2020

Look Beyond 2020: Why is risk identification and monitoring more important now than ever?

News-flash! As you are painfully aware by now, we are in the middle of a global pandemic with many waves and multiple peaks, and an unprecedented economic environment. This doesn’t even begin to describe the variety and complexity of the situations that we and our respective organizations have been finding ourselves in, this year.

Across a variety of industry sectors and geographic areas, whether you are in the automotive industry, HVAC, hospitality, construction or manufacturing with key business partners in North America, Europe or Asia, chances are that your 2020 operations and sales activities did not go exactly as planned, compared to when budgets were finalized in late 2019! The automotive industry in Europe is on track for a 30% to 40% decline in sales, to levels not seen in 50 years. Most other industry sectors had to go through a significant decline in 2020 due to lock-downs, travel restrictions and the “new way” of doing business. Those economic uncertainties are impacting not only consumer confidence and long-term R&D investment levels, but also margins and cash-flows for you, your suppliers’ and your customers’ operations. 

In addition to the Covid crisis, companies were also affected by other macroeconomic events – 2020 has been one of the hardest hit in terms of wildfires in CA, named storms in the Gulf of Mexico, trade tensions, overall political uncertainty and civil unrest in the US and abroad. Key trade deals are still being negotiated around Brexit between the UK and EU. These have impacted multiple aspects from transport routes to employee health/safety to (regulatory) policy uncertainty. 

Good news #1: 

The pent-up demand suggests future demand spikes, and, if the stock market highs are any reflection of investor confidence, 2021 and 2022 will be the years when the best prepared of us capture attractive growth opportunities and further develop a competitive advantage.  

An economic outlook by IMF in October 2020 gave projections of global contraction at 4.4% in 2020, switching to a growth of 5.2% in 2021, with emerging economies contributing more to the growth %. An extension of fiscal countermeasures into 2021 could also propel growth above the current forecast that factors in only the measures implemented and announced so far. The September 2020 outlook for global manufacturing by Moody’s mentioned an EBITDA growth forecast of 8% in 2021, after double-digit declines this year. 

What does it mean to be prepared in this environment? 

At the enterprise level, you need to make sure that your workforce and operation is ready to ramp-up production to levels more than 2020 levels or potentially double in a safe and cost-effective way. Regionally focused business units in a Company have likely been affected differently, meaning this would require a customized approach in ramping up.  

In addition, you need to be able to identify and rely on your key or critical components and suppliers upstream. Many of these suppliers or other manufacturing partners, large or small, have most likely been weakened in 2020. A recent report from Moody’s cautions that some manufacturing segments remain more exposed to risks and uncertainties surrounding any economic recovery, including suppliers for the aerospace, defense and the auto sectors. The report mentioned that suppliers for the auto sector, already facing headwinds coming into 2020, are facing deeper declines in light vehicle sales because of the COVID-induced recession this year, although demand is expected to rise sharply from current lows in 2021. Those are the same suppliers and commodities you are relying to secure your lead-times and quality in 2021!

Good news #2: 

Covid-19 crisis made all of us, including corporations, rethink the way we have been doing business.  A renewed focus on liquidity, operational disruption, and fast-tracking the move towards digital transformation have risen to the top. Companies are more aware of the need to have visibility not only into their own operations but  also their stakeholders, including suppliers and customers. There is also the realization that a one-time static look is not enough and that  continued monitoring is key to risk mitigation. This goes beyond supply chain and operations to managing reputational risk and to evaluating growth opportunities.

How can we help?

Via our robust risk analytics platform, Vertaeon has continued to add and monitor companies on both lagging as well as leading risk indicators including their changing financial health, layoffs, non-compliance, country risks and more.  This goes beyond the company level to macro level drivers and indicators.  We have enabled enterprise and value chain aspects of risks to be assessed and monitored efficiently. Vertaeon’s platform will give the visibility you need to gather, analyze and anticipate the complex risks and trends you are exposed to without knowing, before they can negatively impact your business prospect to thrive.

For more information on how Vertaeon can help you develop a customized solution to your specific situation, simply request a demo or ‘Follow Us’ on Vertaeon’s LinkedIn page.

Authors: David Chouvelon & Rekha Menon-Varma, Vertaeon LLC