What if the CEO asks me about... protecting our supply chain?
The interlinked and complex nature of modern global supply chains make them vulnerable to a range of risks, including multiple potential points of failure and slimmer margins of error to account for delays or disruptions. The COVID-19 pandemic, coupled with Brexit, have created a once-in-a-generation test of supply chain planning, agility and flexibility for retailers and their suppliers. While these circumstances may lead to a revisiting of supply chain strategy and optimisation in the long term, short-term actions will need to be taken to meet the immediate challenge.Protecting your business
The first step in protecting your business from issues related to your supply chain is to understand it and its vulnerabilities. If you haven't done so already, audit chain networks from end consumers to the various tiers of suppliers, establishing the risk for each element and channel (e.g. each supplier, warehouse, factory, transportation mode, etc.).
With a clear supply chain map, you can then turn your attention to considerations such as:
- Contingency planning - what options are available for alternative or fall-back suppliers? Might there be opportunities for onshoring or local suppliers?
- Demand - how are you going to deal with changes in demand? Can you somehow reinforce your forecasting capabilities?
- Inventory - what are your stock levels, and how are they going to remain stable if there is a break in the supply chain?
- Legal implications - what agreements do you have in place with your supply chain, and how might they be breached if there are delays and disruptions? What are the consequences if you can't supply to end consumers?
- Communications - what solutions will you put in place to ensure transparency for stakeholders, employees, and suppliers?
Protecting your suppliers
The knee-jerk response to a supply chain failure can be to insist upon your full contractual rights or sue the defaulting supplier. However, in the current environment, this is unlikely to help you receive the goods any sooner and it will not be easy to get money back from a struggling supplier.
COVID-19 has taught us that in some circumstances there is an inextricable link between protecting ourselves and protecting others. Supply chains can be thought of in the same way. We have outlined the steps you can take for your own business above - but there are also steps you can take to assist others.
- Some of your suppliers will be in financial distress. Where you can, be prepared to offer alternative financial arrangements, such as:
(i) accelerated payment terms - even standard payment terms of 30 days can cause cashflow difficulties for suppliers. If you're able to do so without disrupting your overall expenditures, consider accelerating your payments.
(ii) loans - or other forms of supply chain finance.
(iii) purchasing the supplier outright - a last resort may be, but we have seen businesses asking to be purchased outright by their customers to protect their financial position.
It goes without saying that these steps should only be considered for the right supplier, and in the right circumstances (having considered any legal or regulatory issues); but the broader principle is that, with some flexibility, unexpected financial proposals could become opportunities.
- Given the COVID-19 pandemic, many EU suppliers will not have made Brexit a priority. Their focus may have shifted towards it only now with the signing of the new trade deal. Trading in this new Brexit world is a complex and uncertain subject matter even for UK businesses - so consider extending a helping hand to those suppliers who are not as knowledgeable as they perhaps would otherwise have been.
Disclaimer: The information in this publication is for guidance purposes only and does not constitute legal advice. We attempt to ensure that the content is current as at the date of publication, but we do not guarantee that it remains up to date. You should seek legal or other professional advice before acting or relying on any of the content.