When to end the Furlough?
How on earth do you decide when your business should abandon the furlough and get back to work?
Ending the furlough is not going to be simple. To go back to work requires both supply and demand to be working at full capacity. If either bit has a hole in it then the business in the middle faces trouble.
Researchers at Durham University concluded this week that, from a sample of 267,000 SMEs across the UK, around 29% are at high risk of failure caused by disruption to their supply chains.
Meanwhile speculation grows that a significant portion of the population are scared by the idea of relaxing the lockdown and may not willingly return to normal economic activities.
Take one small business as an example; one of ours as it happens, Dovecote Windows and Doors Ltd. It’s a high-quality set-up doing top quality work. It has a loyal customer base and it only uses the most reliable suppliers. There’s a good order book waiting to be fulfilled as soon as the Company is released by Government regulations. For the moment all the workers are furloughed -which is fine because so are all the suppliers. Nothing is happening and the Government’s support is keeping the business alive.
At some point that will end. For the Company to earn enough revenue to stand on its own feet two sets of things must happen.
First our customers must let us work with them. In the windows and doors business the fitters have to go into customers’ homes. That is not going to be easy with Covid-19 on the loose. Customers will make their own decisions about whether to allow this. Some will be exceptionally cautious and want to wait. Others are already repeatedly asking why they can’t have their orders completed now, even whilst still under lock-down. In short, not all customers will open their doors at once.
Second, suppliers need to be able to provide the materials when they are needed. Not too early - because a small business probably lacks storage. Not too late - because customers deserve to get the service they are paying for. Suppliers all have their own plans for the restarts. They have to manage their own customers and work with their own suppliers.
The consequence of all this is going to be interestingly chaotic. Customers who want deliveries may not be able to get them. Others will not want deliveries and will find them on the doorstep anyway.
In short, re-starting is going to be complex. Dovecote has a small team of fitters. When will there be enough work? What happens when they are taken off furlough (or the Government ends the scheme) and there is still not enough work for them to do? How then will the business survive?
Getting these calculations right is going to require the exercise of many fine judgements. At the moment there are so many unknowns that accurate analysis is almost impossible.
The Government can help with this by being clear about the duration of the various support schemes is has introduced. With fixed dates to plan against it will at least be possible to peg one fixed fact into the diary. Understanding end-user demand will be complex because no 2 clients are going to be the same. Understanding the supply chain will be equally complex.
How do we face this? By communication. By constantly talking to customers and suppliers in order to understand their desires and constraints. None of these problems are intractable but they are exceptionally difficult because they are unprecedented.
The moral of the tale: those that develop close personal understandings across the chain will flourish where those that operate independently and without care for others will fail.