With the government’s Brexit whitepaper lacking clear reassurance of friction-free trading when the UK leaves the EU, SME retailers are still likely to be concerned about what the future might hold.
Those sourcing goods from the EU are seeking advice about whether and how stockpiling could work for them. However, while they are right to plan ahead, it is essential that they understand the true value of their products and avoid focusing simply on sales volumes.
Earlier this year, aerospace giant Airbus warned that it may have to stockpile parts in order to mitigate the impact of customs delays and tariffs on its supply chain after Brexit. This strategy, which involves accumulating a large quantity of goods within the UK, could offer organisations importing from Europe the chance to offset customs duties and logistical costs whilst protecting against possible supply shortages. Buying goods in bulk could also allow some retailers to negotiate better deals by taking advantage of economies of scale.
However, while businesses will understandably be concerned about the impact of post-Brexit changes, it is essential to weigh up the costs involved in adapting their sourcing strategy against the actual value of their products.
When deciding whether stockpiling is financially viable or not, three-way forecasting can help by providing financial forecasts to help with informed decision-making. This involves retailers combining their profit and loss account with their balance sheets and cash flow projections in order to estimate their financial future. Using three-way forecasting can help a business owner to produce a number of different “what if” scenarios for the post-Brexit landscape, including for the use of stockpiling.
When deciding whether to start stockpiling, retailers should also focus on ensuring profitability by assessing exactly what they are selling and whether it is worth selling it. Rather than simply focusing on sales volumes, ranking products in terms of profitability and other factors can help to avoid tying up working capital in loss-making goods, threatening business cash flow. Similarly, when it comes to stocking warehouses, it is important to get the balance right. As well as ensuring there is sufficient cash flow to purchase products in bulk, taking on too much stock could risk items becoming obsolete a few months down the line.
When adapting supply chains to meet post-Brexit challenges, it is also worth business owners bearing in mind that stockpiling is not the only option. Where the likely impact of customs delays and costs is deemed to be significant, retailers may wish to consider switching to domestic suppliers instead. Alternatively, factoring in data for trading with vendors in other international markets when conducting three-way forecasting, for example, the US or China, may help to reveal other options for importing goods from overseas.
For retailers importing large volumes of products from the EU, stockpiling may well prove an effective method of mitigating against the loss of zero-tariff trading and a future outside of the customs union. However, by adopting an analytical approach to the costs involved and considering alternative options, businesses stand the best chance of maintaining healthy profit margins and ensuring stockpiling is truly the right approach for them.
Chris Maloney is partner and retail sector specialist at Menzies LLP.
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