How to maximise stock ahead of Brexit.

Following the stockpiling that took place ahead of the first proposed Brexit date and the subsequent slowdown, this feature looks at the efficient management of inventory and stock levels from a working-capital perspective, in order to mitigate Brexit uncertainty.

1. How can manufacturers maximise inventory, and strengthen supply-chain relations?

2. Where can they go for help and guidance?

3. What type of financial products could potentially support their cash flow

Many companies invested heavily in stockpiling leading up to the delayed March 29th deadline to protect their supply of raw materials in the event of disruption, price increases, late deliveries, suppliers going under etc, many didn’t.

For small businesses this meant 10s x £000s of investment, for larger companies 100s x £000s and for larger organisations many £millions, in all cases eating significantly into working capital, investments, borrowing and having a significant impact on cashflow.

A whole raft of means to consider or mitigate against the impact of the feared challenges that Brexit may have caused, should have been considered then when a deal was expected. Now with the fear of a no deal increasing then planning is imperative. Sustainability and resilience planning by all companies should be standard practice in regardless and forms much of the planning for Brexit. Estimates say between 50–70% smaller businesses have not planned.

In many cases we heard stories of “We don’t export and we only buy in the UK — Brexit will have limited impact on us”. These companies are failing to fully look at the full upstream and downstream supply chain. Where it is inevitable that somewhere in the chain a supplier may be impacted by Brexit so therefore directly affecting your company, or similarly a downstream customer might have issues and this impacts directly back up the chain on your orders, payments or demand. Companies that don’t plan also risk the impact in the changes to the economy, currency, inflation, interest rates or product pricing, when these are impacted as is expected. The scale of these changes being the critical debate, not whether they will happen.

1.1) Inventory Optimisation

For those businesses that stockpiled up to March 29th deadline, then managing that excess stock since has been critical to cashflow, servicing borrowing debt and against a slowing of the UK economy and a post 29th March fall of 1.4% in the UK manufacturing output April-Jun 19.

The requirement for managing that inventory against slowing demand balanced against a Brexit date in October 19, in January 20….or whenever, if ever it happens, remains a constant headache.

1.1.1) Accurate forecasting for companies is critical. Working very closely with suppliers and customers, detailed updates and improved communication channels, committed orders v expected demand as it fluctuates to be able to look at the minimum likely levels that stock could be held to cover a 6 week to 3 month period after Brexit, in the hope that this is long enough for short term challenges to stabilise.

1.1.2) Look at where it’s possible to reduce stock levels to normal once more and for some areas to relieve cashflow position.

1.1.3) Review critical product ranges and focus on most profitable options to stock. A generalistic approach may not be the most efficient. Find a balance to protect additional costs by protecting the most valuable products/customers whilst accepting a greater risk with others.

1.1.4) High value, critical items or long lead time items pose the highest risk. Prioritise and focus these and review them constantly.

1.1.5) Work with supply chains to agree where stock holding in the chain is most effective. Can this reduce holding across the whole supply chain with strategic holding at key/vulnerable points and reduce the overall level?

1.1.6) Look at manufacturing, process capabilities and efficiencies, can less of the same product be used in current or new products, can yield rates be improved, utilisation rates, failure rates reduced as well as non-conformities.

1.1.7) Is the stock a commodity. Can excess be resold where needed to protect current holding, stock v cost.

1.1.8) Look at diversification of products to lesson impact on single product lines where possible.

1.1.9) Review design and processes, can some items be redesigned to reduce impact on the supply chain.

1.1.10) Can incoming products be held in an unconverted or unprocessed state to allow for multiple downstream products and reduce holding quantities as a result.

1.1.11) Consider options to improve shelf life where possible.

1.1.12) Continue to review all points of weakness in the supply chain and customer chain.

1.1.13) Look at early shipment/call-off options for manufactured goods to customers against schedule.

1.1.14) Look at alternative components/materials or products. Change recipes, material types or construction options as appropriate.

1.1.5) Review legislation. If the product or component likely to meet future export or trading requirements post Brexit then consider adapting early, no point stockpiling a product for a specific market that wouldn’t be compliant in the future.

1.1.6) check insurance cover for additional stock holding value is still valid!

1.2) Supply Chain Optimisation and customer downstream chains

1.2.1) Identify single source components in your product, find evaluate and add additional suppliers, mitigating the risk that if one of the suppliers has an issue, there are options to switch.

1.2.2) Full supply chain audit including quality audit. Establish weak links in the chain, ensure suppliers protecting and putting in place their own alternate sources for raw materials, components and financial preparation. Look at logistics, onsite customer bonded stock holding, new in country storage and holding, to pre-empt logistics issues for the follow weeks after a Brexit date.

1.2.3) Establish improved dialog with suppliers. Improved information updates and communication can help to ensure stock holding logistics and timelines are as efficient as possible and minimised as a result

1.2.3) Working with customers to look at downstream impacts and provisions for stock holding, stock piling. Work with resellers, stockists and end users. Forecasting demand trends, weak points in logistics networks.

1.2.4) Consider alternative logistic options to ensure continuity of supply, alternative shipping methods and channels.

1.2.5) Work with suppliers and customers to agree holding points in the chain to improve resilience and response to challenges, sharing the increased inventory costs rather than each point in the chain each having full coverage and excess holding.

2) Help and Guidance

This is varied, subjective, limited and conflicting — free advice is limited, often generic or impractical.

This also varies depending on the scale of the business, most large organisations have created cross functional teams to review internal processes and systems against external factors to improve their ability to handle the impacts of Brexit.

Medium sized entities have varied, some have implemented consultancy support where funds allow, some cursory reviews, many limited. For small companies the cost of preparing is a limiting option, and many have done little at all as a result of the cost.

Our view is that by reviewing the operating risks to your business, review resilience and business sustainability, weak points, efficiencies, back up, recovery, supply chain and internal processes on a regular basis will massively improve the likely success of the business generally, as well as preparing for the vast proportion of the effects of Brexit.

Some small grants and offset funds through government and local government channels may be available for review, consultant support or the impacts of change associated with Brexit. However this is very limited and regional. In place for small businesses in Wales, Scotland and Northern Ireland £2000-£5000 available. Not a universal offer in England.

Business organisations and trade associations can apply for a one off £25k grant to support their members through Gov.uk but individual companies cannot. Fund is £10million, take up is low so far.

UK Gov.uk including online preparation tool

DIT

Institute Export

British Chamber of Commerce

Accredited Bodies/ Trade Organisations

Industry Representative Organisations

LEPs — Growth Hubs — free advice and signposting for small medium and large organisations — some limited grants maybe available region to region

Business Organisations

Private National Consultants

Private Consultants — Such as Amelia Bishop Consulting

Solicitors/Accountants — Client guidelines

Local Authorities.

3) Financial Products to support Brexit

Detailed working capital review suggested

Likely impacts — Higher Goods in inventory

Likely higher finished stock inventory

Delayed payments

Short term trade dips

Currency fluctuation — possible hedging to mitigate

No Government bailout or Brexit related funds have been made directly available to businesses, some sector funding has been made available only.

Insurance — No safety net, very limited options to cover Brexit related losses but lack of demonstrable Brexit planning will invalidate most business insurances, high risk of legal cases of failing to plan for Brexit.

Borrowing — Commercial banks, as well as private finance organisations are typically more flexible then banks, strong suggestion to agree terms, credit and plans before Brexit deadline day. Significant high demand and challenges will prevent the likelihood of being able to respond quickly after the fact!

Delays in VAT and Duty accounting may be possible according to HMRC

Overdraft facility

Invoice financing

Factoring

Alternative lenders

Debt Capital Market — Debt reviews and investor pools

Asset based lending — against inventory or equipment

Property financing

Share/ Rights Issue for PLCs