The Retailer Summer Edition 2021

THE RE TA I L ER

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PREPARING FOR CHANGE: STRATEGIES TO BOLSTER YOUR SUPPLY CHAIN

Lemi McAuley Partner Shoosmiths LLP

Bethan Moore Partner Shoosmiths LLP

E ven for businesses in full financial health, supply chain vulnerability can cause unwanted disruption

Plan of action Once the difficulties are spotted, you need a plan of action. This will depend on the cir- cumstances, but your starting point should be a series of questions such as: • Will you (can you) source another supplier? • If not, is it possible for you to help them through their difficulties? • If it is a customer in difficulties, have you got effective retention of title provisions in your agreement which will allow you to mitigate your losses? Is there any - thing which you need to do to make sure those provisions are more effective (e.g. insisting on separation of your goods in the customer’s warehouse)? Your questions will be specific to your business but thinking about them now will save a lot of time later. Having a plan of action will go a long way to helping you navigate any period of change ahead”. ‘‘

Distress processes There is now a range of rescue and insolvency processes which could affect either your sup- pliers or your customers. At one end there are processes designed to improve the financial health of the company so it can emerge fitter and better able to cope with the current eco- nomic climate and at the other they can bring the business to a close. • Moratorium – designed to give a com - pany breathing space while it finalises a rescue package • CVA and Restructuring Plan – two differ - ent processes which allow businesses to compromise even dissenting creditors to effect a rescue • Administration – usually results in a sale of the business and assets of the com- pany to realise monies to pay creditors • Liquidation – a terminal process in which the business is usually wound up and the assets sold off piecemeal to realise monies for creditors Depending on what process is affecting your supply chain, there are things you can do to limit the impact.

Whilst the feared “tsunami of insolvencies” arising out of the pandemic has not to date had the devastating impact on the economy that many had initially predicted, as we move into a period of easing of government support and lifting of enforcement restrictions, businesses need to be alive to potential weaknesses in their supply chain to put them in the best position to navigate this period of change. We take a look at what might happen to suppliers and customers, see what those events could mean for you andwhat you can do to mitigate against those effects. Earlywarning system Preparing for financial distress affecting your supply chain can go right back to when the relationship is first forged. The earlier you can spot it, the more you can do to mitigate the effects. If you can build performance reviews or reporting functions into your contract with a new supplier, you will be better informed as to howeach supplier is doing. Even if you don’t have those facilities available, spotting red flags and collating that information centrally during the life of the contract is key. Difficulty sourcing an order from a supplier could point to their difficulty in obtaining raw materials, which may mean they have not been paying their bills. Requests from them for you to pay sooner could point to cashflow issues. Changes in a customer’s ordering patterns may also point to an internal cost-cutting exercise. These are flags which can warn you of impending financial difficulty, but if your internal teams are not communicating with each other, the cumulative effect can be missed.

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