Why Corporate Purchasing Could Be Slow to Resume

Crisis Aftermath

HR departments are heads down today as they adapt to the changes wrought by Covid-19. But at some point, employers will look ahead to face a new normal. When they do, early indications are that executives will move cautiously.

HR’s front lines are now preoccupied with three challenges: setting up employees to work from home, handling layoffs or hiring the additional workers needed to keep essential businesses operating.

But at some point, employers will look ahead to face the post-Covid-19 new normal. When they do, early indications are they'll move cautiously. Click To Tweet

Meanwhile, corporate finance leaders are cutting costs and revising their supply chain strategies, according to a survey by PwC. Worried about the virus’s long-term business impact, they’re prioritizing cash spending, evaluating credit options and weighing further budget reductions.

“The realization that the effects of the outbreak aren’t going away quickly is settling in,” said PwC. One example: If the pandemic ended immediately, 76 percent of the finance chiefs believe their business could return to normal operations within three months. That’s down from 90 percent in a survey PwC published on March 16.

Another sign of reality: Eighty percent of CFOs expect a decrease in revenue or profit for the full year, up from 58 percent two weeks ago. 

Remote Work Strains Finance

Helping millions of people confront the simultaneous challenges of working from home, sheltering in place and minding (or homeschooling) their children is also pressuring corporate finances. Employers report a greater need for support and benefits, PwC said, which is leading to strains on call center and technology support systems.

As the crisis continues, many companies seem to have tossed away their planned budgets. For the most part, this means they’ve implemented cost-containment programs by putting the brakes on discretionary spending and deferring—or cancelling—planned investments. Specifically, 64 percent of finance leaders are considering slowing down investments, up from 32 percent in PwC’s previous report. The most likely areas to feel the pain: facilities and IT.

Unknown Territory

Executives have good reason to be nervous about the post-pandemic world. As McKinsey notes, companies across industries will need to reactivate their entire supply chains, even though the timing and location of problems remains to be seen. “The weakest point in the chain will determine the success or otherwise of a return to rehiring, training, and attaining previous levels of workforce productivity,” the firm said.

Adding to the uncertainty, the virus may well make a comeback during the winter months. As Gartner observed, “Without a vaccine or effective prophylactic treatment, a rapid return to a rising spread of the virus is a genuine threat.”

All of this indicates that employers will take their time in ramping up spending once the crisis has passed. That said, the scope of the economic decline is unprecedented and there’s little consensus among executives and economists about the paths the recovery might take. McKinsey, for one, suggests the economy may not come back until 2023.

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Image: iStock