The importance of securing robust supply chains

These had in many cases been disrupted, leading sometimes to shortages of components or raw materials, preventing the business from working at full capacity, sometimes to higher input costs eroding profit, and sometimes to both. Whilst these effects may moderate, businesses need to ensure that their supply chains are robust and secure. In addition, an increasing focus on reducing fossil fuels used in transport might naturally lead to thoughts of shortening supply chains. The outbreak of the war in the Ukraine has tragically also underlined the fundamental issue of geopolitical risk. For the UK of course, all this is further complicated by Brexit having made trade with mainland European trading partners more difficult and costly, rather than less.

Any redesign of your supply chain needs to consider both business resilience and sustainability. The first focuses on managing the risks of potential supply chain volatility which might arise from a whole range of events including future pandemics, geopolitical risk, or regulatory changes. This clearly impacts very tangibly on profit and so the value of your business.

The second will tend to focus on ESG (Environmental, Social and Corporate Governance), net-zero ambitions and environmental sustainability, human rights, and anti-bribery which some might have thought of as having a less tangible impact. In reality, there is a huge overlap. The effect of rising energy prices in a supply chain for example will have a very tangible cost impact but will also provide a strong economic incentive for greater environmental sustainability. We have also seen during the last week how fully geopolitics, sanctions, and public opinion can combine to require businesses to make far-reaching changes to their trading relationships.

Re-designing your supply chain will need you to know where the issues are and how your organisation’s performance compares to industry best practice; it will need the development of a new strategy, and it will probably incorporate improvements in operational performance. There will also need to be consideration of a range of tax issues such as transfer pricing, VAT or Customs Duties on new flows of goods and services and often whether new elements of the supply chain attract new tax compliance obligations.

For example, many UK businesses have found that as a result of Brexit, they have needed to acquire a new or greater business presence in the single market, which has in some cases altered their tax reporting obligations where the new business is located. Investment in AI or digital tools to help manage supply chains might also attract R&D tax credits or the capital investment super-deduction. 

As with pretty much everything post-Covid privately-owned business is having to grapple with the question of how much of the change which the pandemic has brought will be permanent and how much will be transitory. Our own view is that for many businesses, heightened geopolitical risks, an increase in economic nationalism worldwide, and governments committed to net-zero ambitions, will all combine to ensure that things will not simply settle back to a pre-Covid normal. All businesses will need to think about how to minimise supply chain risks and costs, both from a purely financial perspective and also a reputational one.

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