Pictured above: Richard McNeilly - partner at Dains
LLP
A month after the devastating earthquake and tsunami struck the
north-east coast of Japan, aftershocks are now being felt by the
global economy - and manufacturing businesses across the rest of
the world are likely to face serious disruption and losses if
decisive action isn't taken now, explains Richard McNeilly, partner
at regional chartered accountants and business advisers, Dains.
"Given Japan's significance to the international economy, the
extensive damage to its infrastructure has inevitably led to supply
chain problems. Businesses that rely on Japanese
manufacturers for goods and services, as well as for sales, can
expect significant global supply chain disruptions lasting up to
several months.
US auto giant General Motors became the first international
group to halt production due to interrupted supply of spare parts
from Japan. Toyota, the world's biggest car company, has extended
its factory shutdowns - and now UK manufacturer Honda has announced
that it is to halve production at its factory in Swindon until the
end of May.
Many businesses across the Midlands, particularly in the
automotive industry, are heavily reliant on key components and
materials sourced from Japan in their own supply chain. And as the
immediate priorities in Japan are likely to be social not economic,
the consequences of this disaster may unfold very slowly.
The disruption to the UK supply chain is likely to be felt in
the coming weeks when expected supplies don't arrive on time and
may cause cash flow and profitability problems to businesses
already very susceptible to shocks in the fragile recovery.
It is imperative, therefore, that businesses take decisive
action now to prevent much more serious problems in the medium to
long term.
In the first instance, businesses should make sure that they are
covered by business interruption insurance. Most standard policies
do include cover against business interruption, but will vary
according to policy and premium, so it is essential to clarify your
position should you find yourself unable to continue trading at
full capacity in the coming months.
If you haven't already done so, you should also be looking to
open dialogue with your suppliers to identify if they are going to
be affected - and take action as necessary to mitigate these
issues, such as sourcing alternative suppliers outside of
Japan.
Similarly, if you are likely to face problems fulfilling your
orders, you should speak to your customers as soon as possible to
clarify the situation.
If you are likely to face cash-flow problems, even in the short
term, now is the time to talk to your bank about providing some
additional temporary support.
Now more than ever, businesses need a thorough understanding of
their supply chain, including the markets they sell to, the
suppliers they rely on and the critical dependencies that exist
along the supply chain. Effective planning can sometimes make all
the difference to whether a company survives or not.
With this in mind, my message to businesses would be seek advice
and help early - if your supply chain may be impacted in any way by
the disaster, you should start now by assuming that your business
is likely to face serious disruption for an extended period and
develop an effective mitigation strategy."