With the impact of the pandemic still being felt, as well as the fallout from Brexit, many businesses have either already experienced severe supply chain disruption, or they are feeling particularly vulnerable for the future.
This is highlighted by the issues facing the automotive sector, with JLR, losing £9m in the last three months of 2021 due to the global computer chip shortage and other motor manufacturers experiencing similar issues.
To successfully mitigate the risks, you will need robust processes in place to identify and successfully manage disruptions. So, what can you do to mitigate the effects?
Identify the Risks
It’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. These could include:
Supply shortfall, supply stoppage, factory shutdowns or closures, fluctuations in inflation, rising fuel prices and international trade barriers
Once you understand your supply chain and the disruptions you could be faced with, you can begin to take steps to mitigate the risks, such as:
By 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 disruption from a single supplier, because you can turn to other suppliers who are producing the same item.
By 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, rising fuel prices will increase transportation costs, and regionalising supply chains provides an opportunity to lower distribution costs while also reducing risks posed by global supply chains post Brexit.
Having contingency plans could be the difference between success and failure - you 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 in demand products. You can counteract any effect this might have on your profits, by increasing prices on the most sought-after products.
Work closely with your financial advisers
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.
You should also make sure that 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.
Take advantage of opportunities
Lots of flux can be a period of growth for some companies. Those who are open to the possibilities and recognise, evaluate and mitigate the risks, can turn what could be perceived as a problem into an opportunity for growth and diversity.
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Please note: This article is provided for information only and was correct as at time of writing (16/02/22). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.