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Why it pays to prepare for an economic crisis

Author: ICAEW Insights

Published: 04 May 2022

The Ukraine conflict highlights how unpredictable global risks can be. In this environment, it helps to plan for the worst. Abigail Harper suggests six key areas of focus.

Abigail Harper is Group Director of Risk and Internal Audit for a business within the food and beverage sector of the Hospitality and Retail industries. Here she suggests six key areas to review to protect business operations in response to the Ukraine conflict impact to the economy:

Assess the supply chain

The supply chain is a key area impacted by the Ukraine conflict and covers upstream supply chain (supplier to organisation) and downstream supply chain (products to retailer). Identify your key suppliers and ensure that a business continuity plan is in place. Assess what products could be easily substituted, and what financial impact this could have on margins. It may be possible to renegotiate contracts to be favourable to your business, or to support your key suppliers that may be struggling to maintain flow through the supply chain.

Protect margins

During hardships, it is important to protect margins to prevent financial difficulty. Prices should be benchmarked, considering inflation rates, rising costs, and competitor actions to assess whether prices can be raised. Review margins to determine whether there are any loss-making products and whether these should be temporarily discontinued. If individual product costs can be reduced or substituted, beware of compromising quality for cost. Partner with the Finance Team to forecast and analyse demand and respond accordingly. Consider the inventory cycle and shelf life of products and respond to prevent products spoiling or increasing storage costs.

Increase customer loyalty

Customer loyalty is important for brand reputation and maintaining sales. Review business strategies which may have a negative impact on reputation with customers, such as locations remaining in operation and marketing initiatives. Review your customer relationship management (CRM) data to determine spend per customer, frequency of return customers, customer footfall per location, and respond accordingly. Identify opportunities for cross-selling complementary products and review product placement to maximise sales. 

Strengthen cyber security

Often recessions increase illegal cyber activity, where breaches could cause significant disruption and be expensive to rectify. Assess your cyber security defences and strategy; train staff to identify and report suspicious activity, and ensure a continuous cycle of monitoring, reporting, and improvement. 

Consult multiple business functions

Responding to sudden economic changes requires a collaborative effort. Set up a working group consulting multiple business functions to have a 360 cohesive approach. The working group should include (but not be limited to) finance, operations, distribution, legal, risk management, HR/people and IT, and should meet periodically with a set agenda and action plan.

Acknowledge your workforce

Recessions are hard on everyone, and everyone is affected differently. Emphasise the benefits available, whether this be medical care or hotlines, retailer discounts, flexible working or budgeting advice. Employees are key assets for most organisations and shouldn’t be overlooked during these times.

The Ukraine conflict happened suddenly, organisations were unable to plan for it, and it is a changing landscape that requires constant monitoring. There should be added emphasis on risk management and contingency planning and training. Everyone should know what the plan is for different scenarios, so the business can respond quickly. It is an ongoing exercise that requires forward thinking, monitoring, and responding, with the right stakeholders involved.

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