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Trade: maintaining supplies in a perfect storm

Author: ICAEW Insights

Published: 19 Jan 2022

Manufacturers have had to contend with a number of trade and supply challenges to maintain orders. For Jasun Envirocare, the solution has been to review every process and supplier relationship.

For manufacturers like Jasun Envirocare, the past two years have brought with them a perfect storm of challenges. From wage pressure and staff shortages to supply chain challenges and the price of raw materials, it has been a careful balancing act.

Jasun Envirocare has been able to weather that storm by reviewing almost all of its operations. The price of the raw materials it imports has been hit by a comparatively weaker GBP, and shipping and freight costs – which have stabilised at a higher level than two years ago – are adding to pressure on margins.

While customs declarations are under control, the company and its freight forwarders have had to adapt to the real time declarations brought in this month. All of this has a potential impact on cash flow.

“We’ve had to move more of our buying overseas, which has resulted in payments needing to be made on pro forma basis, or payments being made at the time of shipping, which means you’re paying before you receive the goods,” says Charles Chandler, Financial Director for Jasun Envirocare. “Whereas if we were buying from our usual suppliers, we would have our normal credit terms and the goods would arrive in a week. The working capital cycle has been stretched significantly.”

During the pandemic, the company lost some income as the hospitality industry – a critical market – shut down. But it gained in other areas. The focus on indoor air quality has also seen a shift towards premium HEPA grade filters. Some countries in Europe are legislating for minimum standards of air quality, which will offer big opportunities. A similar domestic upgrade in air quality standards could follow suit, already seen in the NHS standard HTMO3.

This is all well and good, but if you can’t get the material to make your products, it will do little to bolster your revenue. Filtration products use the same materials used to make face masks. Suddenly it was very difficult to get materials from existing suppliers.

“We had long-standing suppliers that we have worked with for 20-plus years who, going into the pandemic, just pulled the plug,” says Chandler.

Maintaining supply chains has involved a collaboration between finance, procurement and technical development to come up with a way to create a product that used available materials without compromising performance. “All of our products have to meet testing standards to be certified, so we can’t just change things ad hoc that will reduce the specification of the filter.”

Where the steel price has been high, for example, the company has switched to using copper in some products, which only affects the aesthetics of the filter. The price of card for both manufacture and packaging has also skyrocketed, and securing a steady supply has been challenging.

Some materials have had to be sourced from India and China to ensure consistency of supply. This has meant a big change to the way the company orders and holds stock, investing in additional warehousing to facilitate that change.

“We could buy eight rolls of a product from the UK previously, but now we’ve got to buy 200 rolls to fill a container from India. You then have to store that here and take account of the different lead times, which could be anything up to 16 weeks.”

The company had to maintain tight credit control to make sure customers are paying on time, says Chandler. Whenever cash flow is under strain, the finance team has made sure that suppliers are aware of the issue. “There are some suppliers where you’re having to go a week over payment terms. You must make sure you’re in good communication with them, so you’ve still got a steady supply, and they’re not going to put you on stop and pull the plug.”

Luckily, everyone across the supply chain is in the same boat, and suppliers have been understanding of any issues that have arisen, says Chandler. “There doesn’t seem to be any animosity about payment, as long as people know when they’re getting paid.”

The cash flow position has improved now; businesses have gone through a transition and have become accustomed to new payment terms. Trade for Jasun Envirocare is improving because it has a consistent supply of products it can provide the market, thanks to the measures it put in place across the pandemic.

The current trading conditions have also proved to be an opportunity domestically. Previously, a large influx of finished product would come in from China, Turkey and India, but shipping prices have made that uncompetitive.

In the short term, we’re picking up lots of business off the back of that,” says Chandler. “How long that will continue, I don’t know. At some point shipping prices will go back down.”

The global picture is still complex; the board needs to stay in horizon-scanning mode to identify upcoming threats and opportunities. Collaboration is critical to maintain good trading conditions and a consistency of supply – otherwise different departments will end up clashing.

“We’re in a position as an SME that we’ve got a small board that’s agile. We’re always up to speed on everything that’s going on, which may put us in a better position than bigger organisations.”

Trade: clean growth and tech

Clean growth and the application of major emerging technologies to existing sectors are two key characteristics of trade in 2022. Add to these levelling up supported by foreign direct investment, and there are exciting future prospects for business and the prosperity of communities globally.

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