Understanding the supply chain to build resiliency and manage risk

Marzena Reszka, Lecturer, Staffordshire Business School

Marzena Reska

Fast forward to the coronavirus crisis, whose humanitarian and human-livelihood costs are still rising, even as it also reveals supply-chain vulnerabilities that many small and medium businesses didn’t realize they had. As a result, building flexibility and resilience in operations has gone from one priority among many to business-critical. In this context, organisations need a new approach to manage supply-chain risk and build resiliency.

In the short term, the concern has focused on the shortages of critical goods or services.  In the long term many anticipate a renewed focus on better quantifying risks, with a mindset similar to buying insurance—by using probabilistic approaches, such as discrete-event simulation, and by redesigning business cases to include potential losses from a lack of resiliency measures. These responses represent a shift in business strategy, with companies showing more willingness to weigh the benefits of investments to navigate future risks against the potential fallout from failing to do so.

The current situations shows that there is need to a much deeper view of the supply-chain vulnerability and exposure to create effective mitigation and business-continuity plans.

Thus, there is a need to work more closely with suppliers to build more transparency through collaboration. However, collaboration is often viewed as a fraught territory, with supplier networks viewed as proprietary, and to create a more cooperative working environment can involve or require a deep change of mind-set. There is no need to disclose every detail to their suppliers, but to effectively perform network planning consider:

  • transparency of inventory levels,
  • capacity,
  • and flexibility

these can give a lens into potential bottleneck issues. The research suggests organisations should begin to tackle issues in a structured way, cataloguing and addressing known risks while improving the organisation’s resilience for the inevitable unknown risks that can become a problem in the future.

Supply-chain resilience requires a risk-aware culture to help an organisation establish and maintain strong defensive layers against unknown risks, as well as respond more quickly in the event of a severe crisis or operational threat. As COVID19 brought to light vulnerabilities in companies supply chains, building resiliency is not only a matter of awareness, but of setting an intent across the organisation, clearly communicating to the entire workforce, and taking tangible action to address the immediate and long-term risks.

Risk mitigation often has an associated incremental cost, and so it is important to align on which risks need to be mitigated and which can be borne by the organisation.

  Supply chain and risk are just some of the topics we are covering on a free course – the Small business Leadership Programme – sign up now.

The Small Business Leadership Programme is provided by Staffordshire Business School and is fully funded (free). Participants will develop strategic leadership skills and the confidence to boost business performance.

The course lasts ten weeks and the next two cohort start dates are

West Midlands 12th January  3.00-4.30pm

North West 13th January  3.00-4.30 pm

Register here https://smallbusinesscharter.org/sblp-registration

For more details see the website https://smallbusinesscharter.org/small-business-leadership-programme/

Contact Kat Mitchell if you would like a chat Kathryn.Mitchell@staffs.ac.uk


Sources:

‘’Supplying resilience through assessing diversity of responses to disruption’’, (2019), H.Kahiluoto, H. Makinen. (2019). https://www.emerald.com/insight/0144-3577.htm

‘’Supply chain resilience: the whole is not the sum of the parts’’, (2019),  M. Martins se Sa; P. Laczynska de Souza Miguel . www.emeraldinsight.com/0144-3577.htm

‘’Resetting Supply Chains for the next normal’’   2020  
A. Knut; R. Gupta; V. Trautwein                                                    

  ‘’Risk, Resilience, and rebalancing in global value chains’’, (2020), S. Lund; J. Manyika; J. Wotzel, E. Barribal; B. Krishnan; A. Knut; M.

Tax Avoidance and Competitive Advantage

Mayowa Akinbote, Lecturer, Staffordshire Business School


Apple Inc. (Apple) is a well-known technology company for designing, manufacturing and selling smartphones, tablets, computers and other digitals accessories. Apple has been the world most valuable brand in 2020 with revenue of $267.7 billion (£203.3 billion) and profit of $57.2 billion (£43.4 billion) and the largest public organisation in the United State of America (US) in 2018.

Image Source: Apple Facebook Profile


In 2016, the European Commission found Apple guilty of paying the below 1% effective tax rate to the Irish government in 2003 and that Apple was given preferential tax treatment. This tax advantage was declared illegal and the commission rule that of £12.7 billion in taxes and interest should be paid to Irish government coffers. This amount is equivalent to the Irish National Health budget.
Recently, Apple becomes the most valued traded corporation in the world, valued at £1.7 trillion bigger than £1.5 trillion value of all the FTSE 100 the UK top companies. While Amazon and Google followed Apple as the most valued traded corporations in the US. Some commentators suggest that such sudden growth in value could be aided by tax avoidance deals thus such could create competitive advantages over their competitors.

Tax Avoidance

Tax avoidance is legally bending of the tax rules to gain an undue tax advantage that the rules never intended and creating tax loopholes. Transfer pricing is the biggest enabler of tax avoidance. Big companies like Apple design, manufacture, test, hold patent rights and marketing rights of their products in different countries. This gives opportunities to allocate high costs discretionarily to the country that offers low tax advantage like Ireland thus, profit is channel across borders. The annual global tax avoidance is equivalent to the entire Belgium Gross Domestic Product (GDP) with British overseas territories such as British Virgin Island, Bermuda, Cayman Island followed by Netherland, Switzerland, Luxembourg and Ireland in Europe topping the list of tax avoidance enablers.

Similar to the other multinational companies such as Starbucks, Google, Amazon and Facebook, Apple legally channels 90% all its global profits to through Luxembourg and Ireland before profits were channelled to non-Irish residence subsidiaries to avoid paying taxes. This is not unknown, but the Irish government accept the deal in return for the inward investments and jobs creation. Besides Ireland pride herself as one of the countries with the lowest corporation tax rates in Europe at 12.5%.

In the UK airline companies like tax exile, Virgin Atlantic and EasyJet benefited from tax avoidance for decades. Avoiding paying taxes into the countries where they generate profits hence, reducing the funds available for the development of the key facilities that could save host community’s livelihood especially during this period of uncertainty such as coronavirus pandemic. Regrettably, these companies are also ripping where they did not sow. For instance, the air industry seeking £7.5 billion in bailout due to coronavirus lockdown. They also took the advantage of the government taxpayer-backed general support during the uncertainty period.

Competitive Advantage

Michael Porter explains four generic strategies which companies could adopt to gain high profits over their competitors such as cost leadership, cost focus, differentiation leadership and differentiation focus.

The first two strategies focused on cost leadership strategies are price-based competition in a targeted market. Companies such as EasyJet and Amazon adopt cost focus and cost leadership using both economies of scale and scope to achieve the lowest cost of production to their advantage thus generating high profits with their strategy. These companies rather paid shareholder(s) than to invest in their workforce or pay taxes to the host countries. For instance, at the start of the pandemic, EasyJet paid £60 million of dividend to Monaco tax resident founder Stelios Haji-Ioannou.

The other two strategies focused on differentiation strategies which require significant investment in marketing and consistent promotion. Companies such as Virgin Atlantic and Apple adopts differentiation leadership by targeting larger markets and positioning their products quality superiority, global brand loyalty uniqueness to the market. Despite, cost reduction through economies of scale, Virgin Atlantic and Apple continue to charge premium prices on its products and services.

Although, none of the Porters’ generic strategies includes the possibilities of tax avoidance creating competitive advantages. However, some commentators believe that tax avoidance increases the shareholders’ wealth and the companies’ value thus, encouraging investors to increase investments with the hope of increasing their wealth. Furthermore, some observers consider that these extra investments enable such companies to oblige their host countries into offering tax avoidance deals in return for inward investments and jobs creation in their countries.

Mayowa Akinbote FCCA
Lecturer in Accounting and Finance
Staffordshire Business School
Staff Page: https://www.staffs.ac.uk/people/mayowa-akinbote
LinkedIn: http://linkedin.com/in/mayowa-akinbote-33448895

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