Coronavirus series: building a thriving supply chain

Published on
3 min read

Jayne Hussey discusses the future of supply chains in the first of a series of articles with particular focus around the coronavirus impact and potential opportunities.

#2 Coronavirus: Funding the supply chain, an opportunity for a collaborative approach?

The intimate connection between trade and the financing of trade has been brought into sharp focus during the coronavirus crisis. 'Cash is king' has become a well-used mantra with all elements of the supply chain looking to preserve cash. SME's are a key element of the global economy though sadly, it is widely recognised that these businesses are likely to have been the most severely impacted by COVID-19.

Equally, many businesses in the supply chain are working out how to keep a close eye on the financial viability of their suppliers. Businesses are concerned to ensure that the financial difficulties of suppliers don't put in jeopardy the supply of key material and parts.  Urgent support has been put in place around the world with governments, banks and other lenders keen to offer support to otherwise viable businesses. In the UK,  the Corporate Insolvency and Governance Bill, which is due to become law in the next few weeks,  will also impact upon the remedies available if a supply chain partner becomes subject to a formal insolvency process.

What does this mean for the supply chain and how might it respond?

  1. In the immediate term, suppliers may require full or part payments in advance or payments on account.
  2. Similarly, in the immediate term, suppliers may seek to negotiate shorter payment terms.
  3. It's anticipated that we may well see a rise in receivables financing. Buyers may look to put in place buyer-led receivables financing for their suppliers to participate in. If the buyer has an acceptable credit rating, banks are likely to be pricing credit risk in a way that is consistent with the credit rating of the buyer. This should result in more attractive rates being available than might otherwise be the case for supplier-led receivables financing arrangements.

In any event, a successful recovery from the coronavirus black swan event surely requires all elements of the supply chain to collaborate together to ensure that they can together recover and thrive.

#1 Coronavirus: an opportunity to build a resilient supply chain?

The coronavirus black swan event has brought into sharp focus the complex, global nature of the supply chains upon which very many businesses depend. As the pandemic spread from east to west, no element of the global supply chain was immune from disruption. With raw materials, parts production and transportation subject to lockdown restrictions, the pandemic has proved to be a fast-track master class in supply chain crisis management. Equally, it’s widely recognised that supply chain resilience and agility will play a central role in the recovery of businesses from the impact of coronavirus.

So, if coronavirus has been a fast-track master class in supply chain crisis management, businesses should ensure that they take the opportunity to reflect on what they’ve learnt and how these lessons can be taken forward to develop a supply chain with greater resilience and agility. After all, this won’t be the last supply chain crisis and other "world events" may prove disruptive, for example, the US-China trade war and the "no deal" risk at the end of the Brexit transition period.

Key lessons:

  1. Having a detailed understanding of your supply chain for key materials and parts is crucial. This understanding should extend beyond your tier 1 suppliers.
  2. Ensure you have a good understanding of your logistics and distribution networks. Are they sufficiently agile?
  3. Assess the level of dependence on key suppliers. What is the geographical spread of your supply chain?  Do you need to diversify your supply base?
  4. Consider the nature of your relationship with key suppliers. Is the relationship sufficiently collaborative to foster transparency and problem solving?

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