In an era where operative risks are becoming all the more prominent, supply chain management needs to be appropriately handled. It requires an organisation to diligently administer the entire flow of its materials, services, money, and data through an interconnected and complex network of buyers and suppliers. It thus comes as no surprise that most companies are currently opting to turn their potential point of failures into promising positions of opportunity.
One of the best ways to do this is by judiciously handling the highly underrated facet of supply chain financing. When a CFO creates a resilient supply chain, it does not only enable an organisation to tackle natural, geo-political, and financial shocks, but it also helps breed long-term logistical efficiencies. At this juncture, it becomes important to understand what systemic resilience truly stands for.
What Is System Resiliency?
To put it simply, a resilient system is the one which is able to withstand adversities and deal with a variety of internal and external risks. It is usually created by developing two pivotal capacities, the capacity to resist and the capacity to recover. Resistance allows an organisation to delay disruptions and lower their final impact while recovery permits it to recuperate and emerge stronger. Although resilience can be brought about in many different ways, providing financial leadership and undertaking supply chain financing can prove to be the most immaculate and effective route.
Building Resilience With Supply Chain Finance
As a CFO, if building a resilient supply chain is your primary objective, here are a few factors which you must consider:
- Most industries tend to focus on maintaining inventories. Though inventories are the core around which various organisational constituents revolve, they are inextricably linked to supply chain financing. In other words, the size of the inventory is directly proportional to the financing process.
- When it comes to supply chain management, a lot of companies still make payments after the traditional maturity period of 30, 45, or 60 days is over. However, this waiting period is long enough to put suppliers under grave financial stress. In the longer run, an inappropriate management of finance reduces the quality of supply.
- An unhealthy supply chain finance increases the overall costs for the company. With consistent disruptions, the expected returns plummet. As a result, the organisation tries to switch suppliers which further imposes hefty expenses. Thereby, in order to build a resilient supply chain, collaboration of constituents should be facilitated.
- Supply chain finance provides for the presence of a third party institution which can help bolster the interests of both, the buyers and the suppliers. This is because companies do not normally prefer to share margins or decrease days of credit. An intermediary can extend liquidity to the supplier without enforcing immediacy on the buyer.
Many companies include the aspects of financing into their supply chain management initiatives. However, these attempts are generic and half-hearted.
What is required is for organisations to shift towards newer concepts like enterprise model risk management which don’t just provide a framework to handle uncertainties but also help determine a suitable monitoring and response strategy. This form of advanced supply chain management is the only way to make financing operations seamless and build sustainable and beneficial resiliency into the system.