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Supply Chain Risks Need to Be Prioritised in the Outsourcing Revolution

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Supply Chain Risks Need to Be Prioritised in the Outsourcing Revolution

By Alex Balcombe, Partner at Harris Balcombe 

Outsourcing has come into its own in recent years. More people than ever before are opting to work for themselves and offer their services on a contractual basis.

For businesses that don’t have the capacity or expertise to handle certain processes internally, outsourcing is a blessing. Businesses are seeking technology resources to give them the competitive edge, and hiring manufacturing companies to produce their goods.

Yet the fact that they are no longer simply selling on their own merits opens them up to risks. Businesses are relying on other companies, their operations, people, reputations and decisions to fulfil their own supply chain. If inventory or services are not received on time, it can have a huge domino effect.

The challenge?Getting more companies to undertake contingency plans, insure themselves against the risks of outsourcing and understand the policies that they need to takeup. Being confident in your network of smaller businesses which all have an impact on your bottom line, is crucial.

So, what do you do?

Identify Risks

Companies just don’t operate in isolation anymore, yet supply chains are rarely brought up as priorities in board rooms. What happens if your biggest supplier has its own disaster, isn’t able to get a delivery to you in time and the goods you rely on fail to arrive? This could result in higher costs by having to switch to an alternative provider or even loss of business.

Before you even think about insurance, it’s smart to prioritise a contingency plan. In tumultuous and unpredictable financial times, and as global supply chains continue to grow in complexity, so too do risks. From top to bottom, having a deep understanding of your supply chain is invaluable.

Undertake a comprehensive review of all of the potential drawbacks or situations that could arise externally. By identifying these high-risk areas, you can make sure that you prioritise mitigation strategies, and have a flexible response plan should any of these problems occur. You should document this process in a risk management document, which will help you to develop realistic, cost-effective strategies should a disruption arise.

Resilient Strategy

If you do encounter a bottleneck situation, where key components you usually source from are not available, the company with the better resilience strategy will thrive.

Conduct safety training, have a proactive plan in place, and have other available suppliers on hand. If your key overseas supplier has a logistics issues, finding a replacement at the drop of a hat can be near on impossible if you don’t have a plan in place. For each risk to your global supply chain, you need a contingency strategy in place. It’s also wise to test any plan of action before any problem happens, to allow you to make the supply chain as resilient as possible when facing a disruption.

The Insurance Question

If you depend on many different players to meet deliverables, how do you insure yourself in case they fail to fulfil their work and your business suffers?

One of the most greatly misunderstood types of insurance is business interruption. Some think that any costs associated with business recovery will be picked up by interruption insurance – but this is not true. Business interruption insurance only covers your company operations – you need a supplier extension clause.

A supplier extension insures for the interruption to the supply of goods or services from third parties. It’s also worth noting that you will only be covered if the supplier is hit by something that you have already insured yourself against.

Even if you have the right insurance, the most challenging part of quantifying interruption claims to your supply chain is still the same as if it was a ‘traditional’ disaster such as a fire. This means proving how you would have fared had the incident not occurred.

Insurers may scrutinise your circumstances to, put simply, try to pay you as little as possible, working with a team of professionals to check you have met all of the conditions of your policy.

A specialist claims consultant can help you with the whole process and pick up on crucial points. They can advise on the best course of action, help you to understand your circumstances, minimise further business loss and assign you a team of experts to help. They will also handle all of your paperwork for you, to save you the headache, and negotiate with insurers to prevent any delays or disputes.

Use insurance as a method to control supply chain risks, but don’t use it as an excuse to avoid planning. If you come up with a strategy to stop your business from falling foul to supply chain problems before they arise, you can avoid bottlenecks further down the line. All businesses rely on suppliers and service providers, but the status of them is getting more and more complex. Take the case of Carillion, which highlighted how the collapse of one company can have such a big impact on supply chains.

We’re in the age of efficiency and we’re constantly being measured against productivity. Outsourcing reduces overhead costs, supports innovation, offers global access to talent, enables you to quickly implement new technology and focus on other tasks. However, you do need the reassurance that if a disruption does happen, you have a resilient plan in place now to act quickly, not hastily react.

Business

Battling Covid collateral damage, Renault says 2021 will be volatile

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Battling Covid collateral damage, Renault says 2021 will be volatile 1

By Gilles Guillaume

PARIS (Reuters) – Renault said on Friday it is still fighting the lingering effects of the COVID-19 pandemic, including a shortage of semiconductor chips, that could make for another rough year for the French carmaker.

Renault reported an 8 billion euro ($9.7 billion) loss for 2020 which, combined with gloomy take on the market, sent its shares down more than 5% in late morning trading.

“We are in the midst of a battle to try to manage a difficult year in terms of supply chains, of components,” Chief Executive Luca de Meo told reporters. “This is all the collateral damage of the Covid pandemic… we will have a fairly volatile year.”

De Meo, who took over last July, is looking at ways to boost profitability and sales at Renault while pushing ahead with cost cuts. There were early signs of improving momentum as margins inched up in the second half of 2020.

The group gave no financial guidance for this year, although it said it might reach a target of achieving 2 billion euros in costs cuts by 2023 ahead of time, possibly by December.

Executives said they were confident the carmaker could be profitable in the second half of 2021, but that they lacked sufficient market visibility to provide a forecast.

Renault struck a cautious note, saying it was focused on its recovery but warned orders had faltered in early 2021 as pandemic restrictions continued in some countries.

The group is facing new challenges as the European Union tightens emissions regulations and after rivals PSA and Fiat Chrysler joined forces to create Stellantis, the world’s fourth-biggest automaker.

The auto industry endured a tough 2020 but a swift rebound in premium car sales in China helped companies such as Volkswagen and Daimler to weather the storm.

Auto companies globally have since been hit by a shortage of semiconductors that has forced production cuts worldwide.

“The beginning of the year has shown some signs of weakness,” De Meo told analysts, but added the chip shortage should be resolved by the second half of 2021. “We have taken the necessary measures to anticipate and overcome challenges.”

Renault estimated the chip shortage could reduce its production by about 100,000 vehicles this year.

SHARP HIT

The group was already loss-making in 2019, but took a sharp hit in 2020 during lockdowns to fight the pandemic, which also hurt its Japanese partner Nissan.

Analysts polled by Refinitiv had expected a 7.4 billion euro loss for 2020. The group posted negative free cash flow for 2020.

The 2018 arrest of Carlos Ghosn, who formerly lead the alliance between Renault and Nissan, plunged the automakers into turmoil.

In a further sign that the companies have been working to repair the alliance, De Meo told journalists that Renault and Nissan will announce new joint products together in the coming weeks or months.

Renault has begun to raise prices on some car models, and group operating profit, which was negative for 2020 as a whole, improved in the last six months of the year, reaching 866 million euros or 3.5% of revenue.

Analysts at Jefferies said the operating performance was better than expected. Sales were still falling in the second half, but less sharply.

Renault is slashing jobs and trimming its range of cars, allowing it to slice spending in areas like research and development as it focuses on redressing its finances. It is also pivoting more towards electric cars as part of its revamp.

It was already struggling more than some rivals with sliding sales before the pandemic, after years of a vast expansion drive it is now trying to rein in, focusing on profitable markets.

De Meo told journalists on Friday that the French carmaker will make three new higher-margin models at its Palencia plant in Spain, where manufacturing costs are lower, between 2022 and 2024.

($1 = 0.8269 euros)

(Reporting by Gilles Guillaume and Sarah White in Paris, Nick Carey in London; Editing by Christopher Cushing, David Evans and Jan Harvey)

 

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Business

UK delays review of business rates tax until autumn

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UK delays review of business rates tax until autumn 2

LONDON (Reuters) – Britain’s finance ministry said it would delay publication of its review of business rates – a tax paid by companies based on the value of the property they occupy – until the autumn when the economic outlook should be clearer.

Many companies are demanding reductions in their business rates to help them compete with online retailers.

“Due to the ongoing and wide-ranging impacts of the pandemic and economic uncertainty, the government said the review’s final report would be released later in the year when there is more clarity on the long-term state of the economy and the public finances,” the ministry said.

Finance minister Rishi Sunak has granted a temporary business rates exemption to companies in the retail, hospitality, and leisure sectors, costing over 10 billion pounds ($14 billion). Sunak is due to announce his next round of support measures for the economy on March 3.

($1 = 0.7152 pounds)

(Writing by William Schomberg, editing by David Milliken)

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Discounter Pepco has all of Europe in its sights

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Discounter Pepco has all of Europe in its sights 3

By James Davey

LONDON (Reuters) – Pepco Group, which owns British discount retailer Poundland, has targeted 400 store openings across Europe in its 2020-21 financial year as it expands its PEPCO brand beyond central and eastern Europe, its boss said on Friday.

The group opened a net 327 new stores in its 2019-20 year, taking the total to 3,021 in 15 countries. The PEPCO brand entered western Europe for the first time with openings in Italy and it plans its first foray into Spain in April or May.

Chief Executive Andy Bond said its five stores in Italy have traded “super well” so far.

“That’s given us a lot of confidence that we can now start building PEPCO into western Europe and that expands our market opportunity from roughly 100 million people (in central and eastern Europe) to roughly 500 million people,” he told Reuters.

To further illustrate the brand’s potential he noted that the group has more than 1,000 PEPCO shops in Poland, which has a significantly smaller population and gross domestic product than Italy or Spain.

The company, which also owns the Dealz brand in Europe but does not trade online, has already opened more than 100 of the targeted 400 new stores this financial year.

Pepco Group is part of South African conglomerate Steinhoff, which is still battling the fallout of a 2017 accounting scandal.

Since 2019 Steinhoff and its creditors have been evaluating a range of strategic options for Pepco Group, including a potential public listing, private equity sale or trade sale.

That process was delayed by the pandemic, but Steinhoff said last month that it had resumed.

“The business will be up for sale at the right time. It’s a case of when, rather than if,” said Bond, a former boss of British supermarket chain Asda.

Pepco Group on Friday reported a 31% drop in full-year core earnings, citing temporary coronavirus-related store closures.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) were 229 million euros ($277 million) for the year to Sept. 30, against 331 million euros the previous year.

Sales rose 3% to 3.5 billion euros, reflecting new store openings.

($1 = 0.8279 euros)

(Reporting by James Davey; Editing by David Goodman)

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