A guide to negotiating supply chains and new alliances
The complexity of modern supply chains, often global in their nature, means that they are particularly vulnerable to geopolitical events like coronavirus, which impact different parts of the world at different times.
This can create challenges for businesses before, during and after the domestic implications of such events, including the impact on consumer demand, pass.
Local supply chains can also be disrupted by such global events, with an increase in demand for locally sourced goods and services across multiple industries leading to changes in price and availability.
This guide sets out the steps business owners can take to try and limit the current impact of coronavirus on supply chains in the coming weeks and months. It also looks at how you can plan ahead to avoid further impact by shortening supply chains where possible, collaborating with competitors and reacting to consumer demand.
The Chartered Institute of Procurement and Supply (CIPS) has also provided a number of helpful resources, including webinars and podcasts, helping to explain these important issues.
Understand your current exposure and take immediate steps to mitigate risk
You will have likely had detailed conversations with your suppliers since the start of the pandemic. Building on this work, you must make sure you now have a comprehensive understanding of who all your suppliers are and assess their ability to meet your existing agreements in the current situation. Wherever possible, be clear whether they create the goods or components you buy from them, or whether they rely on others.
Having as much visibility as possible on this will help you identify potential challenges and plan alternative options. If you need to find new global partners, the Department for International Trade can help. It has relationships with a global network of businesses across the world and will be able to advise you on the options available.
It’s important to remember that your suppliers will likely be experiencing similar challenges to you, and where possible you should try and be accommodating of such problems – as you would no doubt want your own customers to be.
Estimate realistic demand and assess available inventory
For some businesses, coronavirus is causing spikes in demand. For others it has caused a sharp decline. By now, you will be aware as to how demand for your products has been impacted and will be in a position to react.
To help you react to these changes, keep in regular contact with your suppliers and customers to understand the developing impact and plan accordingly. Review contract terms with customers and suppliers – which contracts could be terminated at short notice? Where might you incur a late delivery penalty? Make sure you understand the status of every single contract you hold.
Know what restrictions on imports and exports have been brought in and how they affect you
In response to the coronavirus outbreak, governments around the world have closed borders and placed restrictions on non-essential travel. Know what interventions have been put in place and how they might impact your ability to import or export goods and services.
If you need financial support, UK Export Finance (UKEF) works with banks and insurance brokers to help companies of all sizes fulfil and get paid for export contracts. It is supporting businesses impacted by coronavirus including through loans and guarantees.
It is worth nothing that owing to an exemption for lorry drivers from recent UK border quarantine measures, the flow of goods entering the country by road should not be significantly impacted throughout the coronavirus pandemic.
Managing your supply chains in the medium term
If it is no longer feasible to continue operations with a supplier, you can change or terminate your contract with them, freeing up cash to invest in businesses that are more able to meet your needs. Law firm Pinsent Masons have published a helpful explainer on how to terminate supplier contracts, including details on notice periods and outstanding payments.
When looking for new suppliers, you should be mindful of the issues that caused you to terminate relationships with previous businesses, for instance geographical location and suppliers themselves having to rely on supply chains. You should also consider current restrictions on travel, and the potential for future restrictions to disrupt your business.
If you are finding coronavirus has impacted demand negatively, you should consider pausing or terminating supplier contracts to be able to invest in parts of your business that are still experiencing demand. If you have pivoted your business, you may also need to invest in new supplier relationships to provide you with the products and services you need.
Forecasting any medium-term changes to demand can also help reduce disruption, by avoiding late delivery penalties due to supply shortages, or the costly build up of materials due to a reduction in demand.
Forecasting a reduction in demand can also help you to avoid any penalties terminating supplier contracts without proper notice.
Securing future supplies
It is extremely difficult to predict or plan for the impact of geopolitical events like the coronavirus pandemic on your supply chain, but there are some steps you can take to mitigate the damage they cause.
Sage has published a useful ten-step guide to continuity planning for your supply chain, helping you to increase your business’s preparedness for disruption.
Shorter is often safer
If you have a shorter, more self-contained supply chain then you can be less exposed to the impact of geopolitical events like coronavirus. This can include selecting suppliers that have simple supply chains for the products they produce as well as working with businesses based in the UK.
Collaborate with your competitors
In normal times you wouldn’t consider working with your competitors, but in the context of issues presented by the coronavirus pandemic, working with businesses that have similar concerns to yours, and require the same products and services can improve your security.
When working with competitors, you should be clear as to the terms of your engagement from the outset. SmallBusiness.co.uk has a really helpful guide as to how best to collaborate with other businesses.
Continue to react to consumer demand
Ongoing forecasting of consumer demand is helpful for businesses in usual trading conditions, but it can be essential in times of crisis, helping you to streamline your supply chain and invest in the products and services you need and your customers want.
ShipBob has published a useful explainer on the importance and benefits of forecasting demand.
Like anything in business, managing supply chains, particularly during a global crisis, is hard work. This guide aims to set out how business owners can best mitigate the impact of external events on their own supply network in the short, medium and long term.
To do this effectively you must understand your supplier network as if it were your own business, becoming aware of its vulnerabilities in real time to allow you to react faster, and reduce the damage.