A look at what's required for businesses and supply chains to adjust to the post-pandemic era, including the tax and pricing implications of shifting sourcing from China, with two practitioners from Alvarez & Marsal: Sean Laffere, managing director of the Corporate Performance Group, and Al Liguori, managing director of the Taxand Group.
Companies are scrambling to understand what an effective “reset” period looks like, once the coronavirus pandemic has begun to subside. Major considerations include the state of cash and working capital, as well as uncertain customer demand. Still, says Laffere, there are four components that will determine a company’s supply-chain agility in the future: flexibility in sales and operations planning (S&OP), its cost and profitability model, the need to move from a fixed to variable-cost environment, and the shedding of “distractions” — product lines that aren’t profitable.
Geographical concerns abound as well. Companies must determine how the “new normal” impacts their global supply chains. It’s not easy to shift production from one country to another, especially given the need to make simultaneous changes to the sourcing of raw materials and subassemblies. Manufacturing plants don’t operate in a vacuum. Also important to consider are a target country’s quality of infrastructure and regulatory regime.
Tax and pricing implications, once something of an afterthought, must now come to the fore, says Liguori. Depending on the country and jurisdiction, people, assets, customers, inventory, and research and development all might be taxed differently. Companies need to be aware of the changing tax rules in various locations, which are apt to use them to achieve competitive advantage. Negligence about tax issues can also lead to penalties for non-conformance. An exit strategy that doesn’t account for the details can yield “radically negative results.”
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