The past two years have held multiple challenges for fmcg businesses. The pandemic, Brexit, extreme climate events, geopolitical tensions including conflict in Ukraine, as well as rising inflation and interest rates, have all altered supply chains, labour availability and consumer demand.
Business leaders are having to regularly review their forecasting, operating models and growth strategies as they continue to navigate a path through this challenging landscape. There are no easy answers, but there are some things to consider to ensure resilience during these challenging times.
Cash: maintain a close view on your liquidity position
Be disciplined in your short-term cashflow forecasting. Keep a rolling 13-week forecast and update it daily or weekly depending on how tight your liquidity position is. The forecast period should be short enough to maximise accuracy and long enough to allow time to react to any potential liquidity pinch points. Remember to ‘stress test’ your assumptions.
Financial forecasting: use scenario analysis to challenge new opportunities and risks
Regular financial forecasting becomes even more important in a rapidly changing environment. Develop and maintain an integrated financial model so you can regularly assess your P&L, cashflow and balance sheet over the short-to-medium term. Ensure you have flexibility to test assumptions and perform sensitivity and scenario analysis based on changing market conditions. Challenge your risks and opportunities to understand how they affect your liquidity and facilities.
Understand your financing parameters: interest rates, repayment dates, renewal dates, covenants, facility limits, lease obligations. Make sure these are regularly reviewed and integrated into your short-term cash forecast and medium-term financial forecasts.
Levers: support cashflow and profitability by identifying which financial levers to pull and when
Understand the levers you can pull and how they may impact cash and longer-term profitability. You may need to use these to manage your cashflows during a turbulent period. For example, Capex – is it essential or can it be deferred? Critically review your cost base – are there any quick wins? What are the timing implications? Are there any excess stocks that can be liquidated?
Perhaps the biggest challenge in recent months has been protecting margins by passing on cost inflation in the form of price increases. Key to this is a robust, fact-based assessment of costs at both a direct and indirect level and then clear articulation of this to your customers. In addition, product reformulation and product portfolio simplification have been useful remedies for mitigating the cost pressures experienced.
Stakeholders: develop a communication plan
Understand your stakeholders – shareholders, employees, lenders, credit insurers, customers, suppliers, and business partners – and develop a communications plan. There may be a time when you need their support, so it’s best to prepare for that engagement.
Objectivity: be proactive and objective in identifying key risks and opportunities, and take measured action
Be objective in assessing the situation. Acknowledge there’s a problem and challenge your own thinking and existing plans. Engage with your company’s decision-makers early and face into the problem. Make sure you prioritise actions that can have the quickest and biggest impact.
Dependencies: develop a realistic contingency plan to help mitigate potential risks
Assess and understand your key dependencies across your suppliers, customers and key employees.
What if a key supplier goes bust or your supply chains are disrupted – do you have alternatives you can quickly switch to? Undertaking a credit assessment of your supply chain could quickly identify any potential risks to continuity of supply.
Alternatively, what if several large customers delay payment for a month – do you have a liquidity buffer to withstand the cash impact?
Make contingency plans that are actionable and realistic.
By Chris Stott, UK head of food & drink, KPMG
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