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Supply chain woes… just a bump in the road?

Many businesses have scraped through the last 18 months largely due to government support... will recent supply chain issues be the final straw? Gareth McGonigle of ASM Chartered Accountants writes

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Gareth McGonigle

Gareth McGonigle

Gareth McGonigle

The withdrawal of the furlough scheme on September 30, 2021 was seen by many as a potential tipping point for businesses who were heavily reliant on such support. Perhaps a point in time when redundancies would skyrocket, and unemployment rates would increase.

However, recent figures suggest the opposite – planned and actual redundancies are low and indeed, businesses are struggling to recruit staff and fill vacancies across many sectors. Of course, it has only been a short number of weeks since the furlough scheme ended so time will tell if this trend remains.

In addition to labour shortages, there is no doubt that the pandemic has led to exceptional disruption to supply chains also.

As we emerge from the pandemic, markets remain uncertain. With demand continually changing, as well as increased costs, supply chains now face more volatility than ever.

Problems such as the recent petrol crisis across UK forecourts, not caused by a shortage of fuel but rather a shortage of delivery drivers, demonstrates the interdependent and fragile nature of supply chains which are only one Jenga piece away from collapsing. The domino-type effects have been felt throughout the supply chain by businesses that now cannot deliver their own goods and

while buyers cannot protect against events outside of their control, they must look to increase the resilience of their supply chain, addressing vulnerabilities and protecting themselves as best as possible.

 

Financial wellbeing

Businesses need to understand how their suppliers are affected further down the supply chain and if possible, what their financial position is. In the current climate, many suppliers are willing to have open conversations about their financial health with buyers so any opportunity to do so should be taken.

 

Build relationships

Strong relationships are more valuable than ever. Businesses should maintain good communication and settle invoices in good time where possible. By developing strong relationships, businesses may also be given early warning should a supplier get into difficulty. We are now aware, more than ever, that placing reliance on one supplier or suppliers from one location presents an uncomfortable level of risk. If possible, businesses should expand their supply chain to a supply network where if one supplier fails to deliver, other suppliers are able to step in.

 

Supply chain – visualise it

Businesses can understand the health of their supply chain by mapping it out. Visualising a business’ supply chain helps to understand where their suppliers are located, what level of business is carried out, and how reliant they are on certain suppliers in certain locations. Over-reliance and weaknesses can then be identified and addressed as needed.

 

If not the supply chain, what else?

While acute issues like the petrol shortage can be difficult to mitigate against, businesses all along the supply chain are emerging from Covid-19 with a variety of challenges to overcome – strained cash reserves, cost increases across the board as well as a new trading environment absent of government fiscal support… not to mention Brexit related problems.

Increased material, labour and shipping costs, energy price increases, loan repayments falling due, a build-up of HMRC liabilities and an increase in VAT rate in certain sectors are just some of the other factors causing business leaders to take stock in the last quarter of 2021 and into 2022.

There is no doubt as we enter the ‘new normal’ the landscape is somewhat different to that of 18 months ago and so now, more than ever, is the time for businesses to address potential problems before they turn into insurmountable obstacles – supply chain or otherwise. π

Gareth McGonigle is restructuring and insolvency director at ASM Chartered Accountants and is a licensed insolvency practitioner. If you or your clients could benefit from restructuring or insolvency advice, please do not hesitate to contact Gareth on 02890 249 222 or at gareth.mcgonigle@asmbelfast.com


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