Fiona McDermott: How to protect your business against the Eurozone crisis

From forecasting to supply chains and pricing, KPMG partner Fiona McDermott advises businesses on how best to deal with some of the worst case scenarios

Fiona McDermott, partner at Business Modelling Group at KPMG

Despite all the speculation around the Eurozone crisis, it is still very unclear as to what is going to happen.

All we really know is that there will be change; change in relation to the Euro crisis, but also change in relation to the UK economy.

So what should businesses be doing now to try and weather this change?

Many businesses are carrying on as business as usual – we’ve all got a job to do after all. And if you look at the economic figures for January, both retail and manufacturing did much better than expected, although some data from February was again, disappointing.

So maybe we don’t have that much to worry about? Well, maybe, but do you really think that? No, I didn’t think so.

 

Forecast for different scenarios

The problem is nobody really knows what is going to happen. And that’s the first lesson when planning:  remember you are unlikely to make all of the right assumptions, what’s really important is that you test a range of scenarios instead. This enables you to map and develop a range of tactics and strategies.

In order to protect your business as much as possible, the scenarios that you choose to test today should be more extreme than any you thought of in the last ten years. So, if you are in the retail sector, have you looked at the impact of sales coming down by up to 50 per cent?  If that happens, your business model needs to change.

Examining your business model is a step you should be taking today – not in a year’s time when your sales are down 50 per cent. Instead, all businesses should examine their supply chains, product pricing and their client base.

If Greece defaults next week it will have a major impact on the Euro currency. Exchange rates will vary in a way that they haven’t for a long time, and this will have considerable ramifications for cost bases and supply chains. Indeed, most of us will not have the tools in place to forecast and manage the impact of the exchange rate fluctuations we are likely to experience in the future.

Supply chains – is yours robust? Do your suppliers need you?

Variable exchange rates mean businesses must start thinking about their supply chain. Throughout the recession, many organisations were put in the position of having to go to their suppliers to ask for changes in terms. Businesses facing challenging times had no choice but to do this, but so too are businesses that are not necessarily facing challenging times – so there are opportunities out there for some.

Instead, they are using the opportunity to go back to basics and re-examine their business model, while preparing for future outcomes.

Businesses should also be looking at how robust their supply chain is. What problems are your suppliers likely to face, in any given outcome? How dependent are your suppliers on you? Some businesses choose to have a wide range of suppliers, preventing them from growing too dependent on any one supplier, while others have a narrow range, with relationships being almost partnerships. Which model do you operate within? And is it the right one for your business in times like these?

Pricing

Reactive pricing is crucial when consumer confidence is low. Businesses should of course consider lucrative discounting and special deals to incite customers. But this isn’t sustainable in the long run and you must plan how you’re going to pull yourself back out of the discounting situation.

By that I don’t mean simply returning to original prices. Instead, businesses must think about changes in their product range to match the changing times. Marketing around these products must be effective too. And you must ensure you can deliver products at price points that are appropriate for your client.

Client base

And what about your client base? If you’re a pan-European business, to what extent, should you consider diversifying your client base outside of the worst affected areas of the Eurozone? Moving operations to seemingly less affected countries like Germany, for example, could certainly be a viable option. Are there options perhaps through partnerships further afield?

Positioning your business to target clients in stronger markets should be part of your business plan regardless of the Eurozone crisis. Today’s volatile situation makes it even more imperative that businesses have the opportunities outside of the Eurozone on their agenda.

Whatever storm the crisis brings, act now and you and your business should stay warm and dry. 

 

 

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