The economic impact of COVID-19 has demonstrated how retailers must respond to supply chain and demand disruption.
Recent events have demonstrated how vulnerable our global supply chains are to any sort of disruption, be it political, economic or human. Retailers of all sizes and complexity need to take time to fully understand the risks inherent and consider how to respond decisively and proportionately if disruption emerges in the supply chain or should demand for good be impacted.
UK retailers will need to consider the implications of a drop in demand or shortage in supply should the disruption persist:
Retailers will need to reforecast various cash flow and profitability scenarios to ensure they understand impact of both supply chain disruptions but also demand fluctuations.
Today, retailers need to ask some critical questions of their own supply chains and demand forecasts and whilst some may seem obvious, getting clear answers can often prove challenging.
As well as the operational impact, retailers also need to consider the impact of potential supply chain disruption and waning demand on their bottom line.
The first step is pin-pointing the orders affected by any disruption to supply, as well as the impact this will have on existing inventory run down. Without knowing the scale of the issue at hand, it’s very difficult to make robust operational or financial decisions. As any disruption evolves, updating this assessment with an iterative risk management process should be a key component of managing through the situation.
Where it’s possible, the margin and credit implications of sourcing from alternative suppliers on a temporary basis also need to be considered. Using a local supplier may result in an uplift in costs – whilst that might be easily absorbed on a handful of lines this may become increasingly difficult if supply disruption affects a large proportion of SKUs or inputs. Identifying how these costs may (or may not) be transferred to the customer may also help prioritise your response.
The next step to consider is to translate these into a revised liquidity profile, which includes assessing any new working capital dynamics and maintaining a short term cash forecast, almost certainly with a range of possible overlay risk and contingency/mitigation scenarios. This will be essential to provide external funders and other stakeholders with confidence in a management team’s grasp of the situation and potential outcomes. Where a liquidity shortfall becomes part of the realistic potential scenario spectrum, engaging in early dialogue with advisors and funders, will always provide a stronger footing than making an emergency ‘cap in hand’ request at the 11th hour.
If you would like to talk to us about any of the above, please get in touch.
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