There’s no doubt that COVID-19 exposed global supply chain vulnerabilities begging the question about how to ensure stability and resiliency in the future. Wherever your business sits on the spectrum, from manufacturer to consumer, this is likely to be a hot button issue. Disruptors include but are not limited to resource scarcity, congestion, population growth, and climate change. All of these either directly or indirectly put a strain on cash flow. So, how can you navigate the disruptions to maximize liquidity?
Take a Hard Look at Suppliers
Where do your current bottlenecks occur?
Reduce your dependency on foreign markets and delayed deliveries by sourcing suppliers near you. This way, you’ll be able to manage days on hand through smaller buys. Another advantage is that smaller, local suppliers may be more willing to negotiate extended terms if you’re a big fish in their pond. Working with local suppliers also supports local, “made in the USA” manufacturing. In certain situations, this can demand pricing premiums when selling goods to customers.
Dependence on Single Suppliers
Any parts sourced by single suppliers leaves you vulnerable to issues they face. Have you assessed the risks to which your suppliers are exposed and whether that will affect their ability to respond timely? How about your supplier’s suppliers? Consider building relationships with alternate suppliers who may be available when the need arises, potentially at more competitive pricing.
Increased Shipping Costs
Prices for freight and logistics are skyrocketing. Assuming you can work with suppliers to procure materials, getting them in time to manufacture your product on a timely basis is a whole other issue. Many manufacturers will need to account for potential expedited shipping fees.
Invest in Technology
It might seem counter-intuitive, but you’ll need to spend money to save money.
Materials Requirement Planning (MRP)
Chances are, if you’ve seen much growth in the past few years, you may have outgrown your current system and it may be time to look at that software implementation you’ve been avoiding. Having the tools to work with your customers to plan for demand is key to ensuring appropriate “safety stock numbers” to optimize inventory. It will also ensure you’ll have a better chance at getting your hands on the materials when needed.
Accounts Payable Automation
Cloud-based software simplifies, digitizes, and automates back office financial processes. One such use of this resource will allow you to prioritize payments to vendors with early pay discounts.
“Smart Logistics” Implementation
In a recent PwC study, “survey respondents see smart logistics as the strongest lever for cost savings [accounting for nearly 50%]. It’s typically the largest cost bucket in the connected supply chain, as it incorporates warehouse, order management and transport (inbound and outbound), which are each key cost drivers.” This interactive connection of suppliers, manufacturers, logistics service providers and customers fosters supply chain transparency and integrated planning.
As constant, unpredictable change has become the norm, the trendy, managerial term for this, “VUCA” [volatility, uncertainty, complexity, and ambiguity], demands that you avoid traditional, outdated approaches and move forward with more agility, encompassing the items already discussed.
The aforementioned PwC study also shows that companies with end-to-end transparency in their supply chain have been much more successful in being agile as circumstances change. Consider bringing on specialists at appropriate intervals, building in slack where possible, experimenting to understand cause and effect of changes, and investing in information and related data analytics.
Use your size to your advantage
While some of the recommendations here may seem more applicable to larger companies, they often struggle to manage their cash flow because of the sheer volume of daily transactions and the bureaucracy associated with layers of management. Strategic mid-market companies will model the cause and effect of potential change and then be nimble enough to execute at a moment’s notice to take advantage of the opportunities.
What can SSF do to help?
If you’d like to learn more about how SSF can help you evaluate the cash flow implications of your supply chain, please reach out here. Also, view the September 21, SSF sponsored panel discussion on supply chain hosted by AMBayArea here.