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HCR Law Events

10 May 2022

Indicators of possible strain in the supply chain

If you’re in manufacturing, you’ve no doubt been grappling with supply chain issues for some time. Which have, unfortunately, only been amplified (but for very different reasons) by the war in Ukraine. This article explores some of the issues – and suggests ways to alleviate them.

Global shipping

Ships ‘stacking’ outside ports, ships/containers being in the ‘wrong’ part of the world and the cost of freight increasing exponentially will have had an impact on any business that operates a ‘just in time’ model, rather than having built up stock. This has also led to being unable to ship your products and not having ready access to items you need.

Labour shortages

As well as workers returning permanently to their countries of origin after Brexit, the pandemic has also created a gap in the work force as quite a large number people have decided not to return to the workplace.

This has caused a shortage of people available to work and added to the cost of attracting employees. The effect of this has been detrimental in a variety of sectors. The absence of suitably skilled staff is causing problems in the agricultural and manufacturing sectors in particular.

Prices

Commodity and energy prices are increasing and there is little prospect of these coming down soon. One only has to look at the consumer price cap on energy bills, the shortage of cooking oil and fertiliser, and the increased cost of running a manufacturing process with high energy consumption to get a feel for what is happening.

Commodity and energy prices are increasing as a result of geopolitical issues and the global shipping/transportation situation. Inflation is also having an impact. The Governor of the Bank of England and most economic advisers are indicating that they expect inflation to be with us for some time to come.

What to do next

Some of the options open to you include running a business for cash as opposed to profit (although, and obviously, not trading whilst insolvent or becoming so).  Whilst this may seem counterintuitive, cash is (and always has been) king! As well as sourcing materials from several different suppliers, or certainly a variety of supplier streams, you should also be prepared to pay more, and wherever possible pass it on to your own customers. You can take some comfort in the fact that you’ll not be the only business having to face these unwanted decisions.

If possible, seek to tie in your own suppliers on price and give yourself flexibility when supplying onto a third party. Check terms of business and whether the same can be varied to accommodate what you need.

Look at upskilling or multi-skilling your staff. Finally, as ever, check and identify where your pressure points are and have a contingency plan in place. Identify what your priorities are and how you are able to ensure the continuing, successful (and solvent) trading of your business.

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About the Author
Alan Meiklejohn, Partner

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