Three supply chain trends for managing challenging times
When the success of your (or your client’s) business depends on complex logistics, these top supply chain trends can help you remain agile and competitive.
A dependable supply chain is critical to seamless operations for companies in sectors like manufacturing, wholesale, retail and even transportation. When it’s working well, you can better control your costs, turn over inventory quicker and increase your speed of delivery to customers.
When disruptions do occur, they can dramatically impact supply chains. The past few years showed us how global events out of businesses’ control can cause severe interruptions in the global supply chain, requiring companies to adapt, pivot and problem-solve.
Although supply chain woes have eased in 2023, with only 10% of businesses in the first quarter saying they expect maintaining inventory levels to be an obstacle over the next three months, supply chain issues are still top of mind in certain industries.
For example, a quarter of businesses in retail and wholesale trade expect maintaining inventory levels to be a challenge in Q1. According to a Q4 survey from the U.S. National Association of Manufacturers, 65% of manufacturing leaders say supply chain disruptions continue to be a business challenge.
For those who want to navigate today’s market successfully, managing your supply chain is vital to mitigating potential risks.
Here are three of the top supply chain trends that can help you or your clients ease bottlenecks and improve cash flow:
1. Increase technology investment
One trend that accelerated in 2022 was investing in cloud-based digital transformation, says KPMG. A recent survey shows that some 43% of U.S. businesses planned to build supply chain resilience through automation and robotics.
Companies can continue to automate their supply chain this year by adopting AI and machine-learning technologies to boost analytic capabilities, increase visibility into all parts of the supply chain and enable access to real-time data. Continuing your shift to adopting new technologies will let you anticipate challenges and risk areas, make decisions quickly and connect instantly to your supply chain partners.
2. Evaluate the elements of your supply chain
As recent trends have shown, potential disruptions to the supply chain can include anything from a supplier’s financial health to changing regulations or geopolitical conflict, according to Moody’s Analytics.
With the market recovering from the pandemic, the conflict in Ukraine and transportation issues exposing vulnerabilities in the global supply chain, Canadian and U.S. governments have already taken steps to ‘friend-shore’ strategic supply chain areas to economic partners with shared values. This also involves a move away from areas where the supply chain is unsustainable or uses forced labour.
In a business context, moving parts of your supply chain closer to or within your local jurisdiction (often referred to as near-shoring or re-shoring) can work to reduce risk, minimize disruptions and increase efficiency and flexibility. Part of this may also involve creating a larger, more diverse network of suppliers to increase your supply chain’s resilience.
3. Optimize your working capital
When the supply chain is disrupted, it’s not only your inventory levels and the end customer that feel the effects. Regular payments are often negatively impacted, affecting your cash flow. This can strain your ability to cover your financial obligations and take advantage of opportunities to grow.
To see the effect of supply chain disruptions on your cash flow situation, start by looking at your cash conversion cycle (CCC) — the number of days it takes to sell your inventory, minus the days it takes you to pay your suppliers, plus the days you need to collect on your invoices.
If supply chain challenges are making your cash conversion cycle longer than you’re normally used to — either because your customers are taking longer to pay invoices or you need more time to settle your accounts payable — consider options to shorten it.
Reducing your payment terms or improving supplier relationships are two ways to do this — but these may not be possible when supply chain conditions are challenging.
Another alternative is to consider taking control of your cash flow through a solution like invoice factoring. When you factor your invoices, your outstanding accounts receivable are quickly and securely converted into cash so that you can maintain a healthy cash flow.
By actively managing the parts of the supply chain within your control — including ensuring you have enough working capital to meet your obligations when unforeseen challenges hit — you’ll be on your way to minimizing disruptions to your business and can move forward with confidence.
Want to learn more about how invoice factoring can help manage working capital and overcome supply chain challenges? Contact a Liquid Capital Principal today.