Insight: Tips & advice to reduce the supply chain impact of Coronavirus

Hundreds of UK manufacturing firms are at serious risk of falling into administration in the coming weeks if they fail to deal with the potential issues relating to their supply chain caused by the Coronavirus, warns law firm Irwin Mitchell.

Restructuring lawyers at Irwin Mitchell say that they are already advising a business that has fallen into financial difficulty after having its supply chain in China disrupted.

The organisation is currently unable to complete production and faces the prospect of going into administration due to not fulfilling its orders on time.

 

Andrew Walker, partner and Head of the Restructuring & Insolvency team at Irwin Mitchell, said: “Many UK manufacturers that have overseas’ supply chains are at risk of not being able to complete orders.

“It has already been highlighted how Coronavirus could slow production at Jaguar Land Rover, but the same supply chain issues are affecting other manufacturers of all sizes and these businesses could quickly find themselves in financial trouble as production slows or stops completely and payments become delayed.

“We are already dealing a business which is now in a very perilous financial position but I think the small number we are seeing now is just the tip of the iceberg.”

Tips and advice for manufacturers to help them deal with Coronavirus

1 – Review your supply chain.

Due to China’s influence over the global market, take a look at whether you can complete orders without supply from China. If the answer is no then you will need to review your contracts with your clients about performance and delivery. Are there any late fees? Is there a force majeure clause? Care needs to be taken here as changing supplier may result in a company being required to pay a premium. This could have a significant impact on those companies facing or in financial difficulties or where there profit margins are small.

2 – Data and contacts.

Keep an eye on the media and how they are reporting the information. The media will try to avoid a panic, it’s important to reach out to your contacts in the local market to see how they are reacting to the situation. This should give you a better indication on your situation.

3 – Review your Insurance.

As the impact of the virus upon the global economy increases, it will become ever more important to ensure that you are covered in the event of any losses you may incur. Understand what you are covered for, and for how much, and take this into account when planning for the months ahead. Check your business insurance for legal expenses insurance cover (LEI). Should you need to take legal action, first consult your insurance before issuing any claims.

4 – Employees.

Rethink work practices. If there is an option for your employees to work from home, allow it and even encourage it. Meetings that would normally be face to face, have these be teleconferences instead.

5 – Learn from this.

Even though these issues are only just starting to impact companies in the UK it is worth planning your next steps after the world rights itself. Make contingency plans and test them regularly. Ensure any contracts you enter into have the correct clauses to protect you should a similar situation arise. Build back any relationships that might have become strained during this time. Consult your employees on how they feel the company reacted, be it positively or if there is room for improvement. Enact any changes that are necessary.

Dorrien Peters, partner and Head of Manufacturing at Irwin Mitchell, added: “Manufacturers with concerns should seek expert legal advice to ensure all options and solutions are considered. Our international networks of law firms, for example, allows us to put clients in touch with other firms across the world along with their suppliers, opening up alternative supplier arrangements and relationships.”