With a global pandemic currently in full swing, and Brexit just around the corner, many businesses have either already experienced severe supply chain disruptions, or they are feeling particularly vulnerable for the future.
With many manufacturing and distribution businesses relying on a low-cost and efficient supply chain, these disruptions and vulnerabilities can be highly damaging to both reputation and profits.
To successfully mitigate the risk to the business, organisations need robust processes to identify and successfully manage ever impending supply chain disruptions.
Identify the RiskIt’s impossible to mitigate risk without performing a thorough assessment of your entire supply chain. You should map out your key suppliers, plants, warehouses, and transport routes to identify the potential risks.
Risks could include:
- Supply shortfall
- Supply stoppage
- Factory shutdowns or closures
- Rising fuel prices
- International trade barriers
Once you have an understanding of your supply chain and the disruptions you could be faced with, you can begin to make steps to mitigate the risk.
Segment the supply chainBy segmenting your supply chain for each product line, you can make steps to improve profits and reduce supply chain fragility.
For fast-moving, high demand products, you should look to source from multiple suppliers. This could reduce your costs whilst also reducing the impact of a disruption from a single supplier, because you can turn to other suppliers who are producing the same item.
Regionalise the supply chainBy regionalising your supply chain, you can contain the impact of disruptive events such as Covid-19, Brexit and natural disasters. Companies such as Amazon do this particularly well, with distribution centres positioned within their busiest regions, allowing them to continue to serve their customer base despite these disruptions.
Also, since rising fuel prices increase transportation costs, regionalising supply chains provides an opportunity to lower distribution costs while also reducing risks posed by global supply chains post Brexit.
Establish back up plansYou should establish a list of suppliers you can turn to at short notice if required, and potentially be willing to pay a higher price for your most high demand products. But don’t let this eat into your profits if you can help it. To keep up with customer demand, you may need to increase prices on particularly sought-after items.
Work closely with finance As always, you should work hand in hand with your accountant and finance team to have a clear visibility of your finances on a daily and weekly basis. This will help you to:
- Ensure you are clear on your breakeven, and revise if necessary
- Ensure you have a clear weekly cashflow forecast managed in-house that forecasts out the next 6-12 weeks
- Run scenarios based on quicker payment terms to suppliers or bulk buying of stock, and assess the cashflow impacts of your contingency plans
- Review the impact of lower GP margins and potential shortfall in sales, and look at financing requirements if this were to happen
Look for opportunityAs long as you have a taskforce fully dedicated to recognise, evaluate and mitigate the risks, you can turn what can be perceived as a problem into an opportunity for growth and diversity. If you need extra support with managing supply chain disruptions, get in touch with the team at Oldfield Advisory.