Financial Security in the Supply Chain

What do we mean by financial security?

The financial security of a business is paramount to its survival. But such security can come in a number of different guises.

The main one is often listed as the Triple Bottom Line, but what is this?

 The Triple Bottom Line is a business concept which suggests businesses should focus on and measure three key areas:

  • People: what is your organisation’s ? How are you committing to people (internal or external stakeholders)?
  • Planet: organisations hold the key to driving positive change; is your organisation making a positive impact on the planet?
  • Profit: an organisation’s success is heavily dependant on its financial security, performance and the profits it generates for all stakeholders.

Strategic planning is key when it comes to staying on top of, and maximising your profits, in particular when it comes to managing your supply chain.

 

What are the financial security risks to a business?

There are a multitude of financial risks faced by businesses every day, including cash-flow management and the balancing of costs coming in, and going out, of the business.

In instances where companies fail to manage this effectively, knock-on risks can be seen in delayed payments to both employees and suppliers alike, often resulting in a disgruntled workforce with high churn, ultimately leading to higher costs to employ; or a supply base unwilling to supply without proforma payment, therefore exacerbating a company’s financial risks.

All of the above can hit profits, so businesses need to mitigate any delays in payments or delivery of services or goods.

 

What can help avoid common financial delays?

An easy way to avoid potential issues is by using a global logistics calendar.

Every year there are key dates which can impact lead times and cause delays to the shipments of your orders.

These key dates can vary from Chinese New Year and Easter to Black Friday and Cyber Monday.

Understanding these key dates will allow a business to plan around them and the associated risks, ensuring that orders are placed in a timely manner and in quantities to avoid delays to your end customer.

Here is a helpful link for those who aren’t sure where to start with understanding key dates.

Having a sustainable supply chain , is increasingly imperative as more and more companies look at their ESG situation and make changes to ensure they apply sustainable ethics to their business model.

 

Financial seasonality within the supply chain:

Supply and demand of markets is everchanging and it is key a company’s buyers have a thorough understanding of this to ensure profits triumph over losses.

Not only are key holidays influential factors in the supply and demand of the markets, but there are also general peaks and dips throughout the year.

So what factors are key in managing seasonal supply chains?

  1. Data analytics – understanding your end customer and their buying habits will enable you to accurately meet inventory demands. When providing perishable goods, such as food and beverage, wastage and expiration dates must be considered
  2. Resource – ensure you have enough manpower to manage the busier times of year, and don’t hold on to excess staff members when you are not as busy. This will help you to function effectively and efficiently while not wasting money
  3. Suppliers – where are your suppliers providing goods from? Which suppliers have longer lead times? Ensure visibility of this key information to help you strategically plan to ensure inventory for the peak times of year
  4. Technology – what technology can you implement to gain a better view of your supply base?

 

What about those instances you can’t plan for?

All organisations have been hit by unforeseen events such as Covid-19 and the recent war in Ukraine.

These situations can’t be predicted and therefore the risks associated with them cannot be mitigated in advance. A key risk of such instances is the extreme increase in supply chain costs caused.

The better understanding an organisation has of the risks they can manage, such as seasonality and global logistics, will enable them to be better prepared for these unforeseen events, as opposed to putting out multiple fires at once.

To put these unforeseen situations into context:

  • 23% of UK business plan to reduce the size of their workforce to offset Brexit-related costs
  • 60% of UK businesses with EU suppliers say that currency fluctuations following Brexit have made their supply chain costs more expensive
  • 29% companies that export goods are concerned about the rising inflation due to supply chain disruptions
  • ‘Just in time’ shipping is dying as 25% companies now hold on to stock for 3 months or more

 

Calathea’s top five tips for strategic financial planning:

  1. Refer to a global logistics calendar, this will be a business’ best friend for planning around foreseen circumstances to ensure effective cash flow management
  2. Ensure the company has complete visibility of its supply chain, knowing where things are coming and going from is essential in understanding and mitigating supply chain risks
  3. Identify and regularly review the risks associated with a supply chain and put contingencies in place – to reduce financial impact
  4. Relationships/governance/understanding with a business’ suppliers, will allow it to navigate successfully around the logistics calendar
  5. For the retail buyer, understanding consumer buying habits and when to place orders to ensure timely manufacturing and distribution to avoid unforeseen cost increases is critical. Prices rise as demand increases at short notice.

 

The visibility of your supply chain is something Calathea can help you with, giving you potentially vital support when facing current and future financial security issues for your business.