Don’t Let Supply Chain Disruptions Disrupt Your Narrative
In March 2020, we wrote a piece titled “Transparency and Preparedness Keys for Success in Industrials During Crises,” which focused on how companies, specifically those in the industrials sector, can manage communications and investor relations during supply chain disruptions. More than 18 months later, most of what we wrote still holds true – especially the notion that the worst had yet to come.
Today’s Challenges Are Here to Stay
While we still don’t have a crystal ball, it’s clear that the attention on supply chain disruptions is not going away anytime soon. Media mentions of “supply chain” are on the rise, rapidly approaching (and likely surpassing) Q2 2020 levels. Additionally, the IMF recently cut its global growth forecast, warning consumers of inflationary risks and potential price increases in basic goods, such as food and medicine, due to ongoing uncertainty around COVID-19 and its variants, as well as continued supply chain disruptions.
We hold firm in our position that companies should highlight diversification of suppliers, be transparent and set realistic production expectations, and have a contingency plan should supply chains breakdown. But, at this point, some of these options may no longer be feasible. So, how do you speak confidently about something you can’t quite predict?
When You Can’t Control the World, Control Your Narrative
As we head into earnings season, investors and other stakeholder groups are going to have questions, and rightly so. While this may seem daunting, the upside is that you have an opportunity to control your business narrative.
As usual, it’s important to tell your company’s story, touching on the critical elements of your corporate narrative that are always focal points. Beyond that, though, it will be important to clearly articulate why an investor should have faith that your business will emerge from this crisis in good shape. The supply chain disruptions you are likely facing are no secret, so be frank about how you’re addressing them. Consider these questions as prompts for your earnings scripting:
- What are you doing to manage capacity and/or inventory?
- How long do you suspect ongoing disruptions will last?
- Are you pulling back the reigns on sales to avoid over-demand?
- How, if at all, are you tweaking messaging to customers to explain inventory shortages?
- How is the business keeping procurement expenses down?
- If your business is vertically integrated, how is that mitigating supply chain disruptions?
- If your business is not vertically integrated, to what extent are you evaluating integration options?
- Do the current supply chain constraints have any impact on your products’ safety or reliability?
- Are you adapting your pricing structure or simply taking a hit to the bottom line?
Don’t Forget Guidance
In addition to the above, a major component of your story – and, unsurprisingly, one of the biggest sources of our clients’ questions – is forward-looking guidance. While our recommendations depend on the company, industry, location, and more, you should think long and hard about updating your guidance. Work with your internal teams to forecast the best you can, and if you believe your results are going to be materially impacted by supply chain (or any) disruptions, then you have a fiduciary duty to tell your investors that.
However, if you are confident in your ability to stay within your current guidance range or close to consensus estimates, that’s an entirely different case. Some industries are not experiencing disruptions as severely as others, and other thriving right now. If you are lucky enough to belong to one of these industries, you should still be proactive with investors regarding your lack of disruptions to avoid overly pessimistic expectations from Wall Street.
Wherever you fall on the spectrum of supply chain disruptions, the most important thing you can do is be transparent, proactive, and honest with your investors. Answer their questions as directly as possible and focus on the good that your company is doing to mitigate negative impacts.
To learn about how to control your supply chain narrative and drive a productive dialogue with investors, contact us.Back To Blog