Supply chain crisis – How can you minimise disruption?

Supply chain risk is a high priority for businesses in every sector right now, especially for retailers as they seek to drive growth during peak season. It has certainly been an unpredictable time, as retailers try to build brand loyalty and increase revenue whilst juggling unreliable supply chains and staff shortages. Here our retail team offers some tips to address short term disruption and consider longer-term objectives:

Short term goals

Managing risk

What are your most pressing issues, and which ones need to be prioritised right now? Some of these will be financial, others may be reputational; we recognise that each retailer has its own challenges to deal with and different priorities.

Some of our clients have updated their customer terms and conditions to allow for more flexibility around delivery times and extended their returns period, whilst others have invested in better customer support platforms in order to maintain or improve customer satisfaction. Although most organisations recognise that this isn’t the time to be making big changes, there are smaller steps which can help to protect your business in the short term.

Managing suppliers

The impact of both Covid and Brexit continues to play havoc with supply chains for all shapes and sizes of retailers. If you have fallen out with a particular supplier, or you can foresee an issue arising, consider whether that supplier is a long term partner or a more ad hoc provider.

We recommend you change your approach based on the longevity of your relationship, taking a more understanding position with those suppliers who you want to work with long term as this is more likely to preserve mutual trust between the two companies.

For those contractors who have let you down and with whom you don’t see a long term future arrangement, don’t be afraid to enforce the applicable contract terms to secure the best possible outcome for your business.

Contractual terms don’t need to be your opening gambit though; never under-estimate the value of a strategic, commercial discussion and seek to maintain an open and constructive dialogue to salvage a difficult situation. With ongoing uncertainty across supply chains, maintaining a diverse supplier base is essential to keep disruption to a minimum so always take a considered view before taking too strong a stance in any disputes.

Managing finances

We encourage all retailers to assess their ability to fund the financial costs of any short-term measures, particularly as some of the measures may impact an organisation’s ability to meet their financial covenants within their existing facilities. Are your existing finance arrangements sufficient to cover new measures or will additional finance be required? Don’t forget to allow lead in time if you are considering additional support.

Financial institutions are open to discussions, and we’ve seen this first-hand having recently provided support for seasonal businesses to extend their bank facilities. This approach will enable them to carry excess stock over the winter months in light of ongoing supply chain risk which gives them some confidence in these uncertain times. Maintaining a positive dialogue with your bank’s relationship manager is key to unlocking additional finance options!

supply chain - taking inventory

Long term objectives

Being a responsible and ethical business

This is a key focus for retailers because staff, customers and investors alike want to see responsible business initiatives being implemented. It may feel rather daunting, but we have seen and supported clients successfully bring in new policies and processes which begin to address the environmental, social and governance agenda, and responsible supply chain management is a good place to start.

Do your existing supplier questionnaires and contracts go far enough to draw out the ethical values and sustainability practices of your suppliers? Whether it’s building additional questions into your procurement process to ascertain suppliers’ ethical behaviour or including early termination rights in contracts which enable you to end a relationship with a supplier who fails to meet agreed environmental targets or conditions, reviewing your engagement with suppliers is a positive step towards creating a framework which champions responsible business.

Maintaining a diverse supplier base

Some retailers will be ahead of the curve here because of their preparations for Brexit. It’s difficult to say how much of the current global supply chain disruption is due to Brexit because of the CV19 outbreak, but the overriding theme is around building a diverse supply chain to minimise uncertainty.

Have you carried out a supply chain audit to assess who your key suppliers are, where they are based and what contractual protections are in place if you need to rely on them? Where are the biggest risk areas within your supplier base and why?

We suggest you look beyond your first tier suppliers to better understand where risks may lie; taking a too narrow approach won’t deliver the resilience which many organisations are seeking. Factor in country-specific holidays such as Thanksgiving and Chinese New Year, where manufacturers and resellers shut down completely, and consider onshoring those elements of your supply chain which may be affected to manage these periods – although we recognise that staff shortages in manufacturing plants and logistics companies due to CV19 mean that the domestic market isn’t necessarily more reliable right now.

Delivering a financially sound strategy

Business need to ensure that their long term finance arrangements and strategy take account of known supply chain issues and any available remedial steps. Does your financial strategy provide headroom for future uncertainty? We recommend retailers review their current facility terms and consider bringing conversations around refinancing forward, especially whilst the cost of lending remains low.

Next steps

Most retailers have invested heavily over the last 12 months to minimise supply chain disruption; those businesses who continue to adapt quickly and effectively to challenges whilst considering longer term initiatives are likely to develop the most flexible and agile solutions to the ongoing uncertainty and will ultimately come out of the pandemic in a stronger position.

Key Contacts