20 November 2018

How can the supply chain adapt to changing needs?

When trade relationships are changing it’s essential to examine every part of the business

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Companies across North America are modernizing their supply chains, and with global trade relationships in transition, that’s absolutely necessary right now, says Andrew Skinner, Head of Global Trade and Receivables Finance at HSBC Bank Canada.

Supply chains can make or break a company. Those that build and deliver their products on time succeed, while those that don’t might have to deliver excuses – or worse. Until recently, it was relatively easy to manage the input of raw materials and the output of products, using roads, rails and air; and connecting via phone, radio and paper-based bills of lading. But in the digital age, the supply chains of the future already look a lot different. 

“A lot of things are changing for our clients with respect to their supply chains,” Mr. Skinner says. “There’s a real focus on logistics,” he says, citing how rules governing truck driver fatigue have a direct impact on distribution from warehouses, for example, and therefore a company’s bottom line.

Mr. Skinner also points to the changing tariff environment Canadian businesses face. Earlier this year, U.S. President Donald Trump imposed a 10-per-cent tariff on imported steel and a 25-per-cent tariff on aluminum. The levies were applied to a number of countries and Canada was not exempted, which led to Ottawa imposing retaliatory tariffs.

The United States has also imposed a wide range of tariffs on goods from China, which can affect products across the North American supply chain, since many manufactured goods such as autos are fed by materials that are shipped across the border several times.

“If you’re in the middle of a project or large seasonal shipment, the new tariff situation can be tough to navigate. We’re working with our clients to help,” Mr. Skinner says.

Key to navigating uncertainty caused by continuing trade and tariff skirmishes is to examine other aspects of the supply chain that can be made more efficient. The tariff battle isn’t the only factor causing companies to rethink and modernize, Mr. Skinner says.

“While cost is a key driver, there is a continued move toward sustainable supply chains. Businesses are being challenged to adopt more sustainable business practices, non-governmental organizations are playing a great role in the supply chain and research shows independent sustainable certification assists with brand reputation,” he explains.

Another area of the supply chain that HSBC Bank Canada is encouraging clients to fine-tune is the management of their working capital.

Working capital is the amount of money a company has to finance its day-to-day operations. The aim is to generate positive cash flow from sale of goods or services to exceed short-term payment obligations of the business, such as staff and suppliers. Over the past few years, with borrowing rates at record-low levels, companies looking to expand would typically incur longer-term debt by issuing bonds or arranging a bank credit facility.

“Historically, companies could access debt fairly easily in North America. However, medium- and long-term debt is getting more expensive and there are competitive alternatives,” Mr. Skinner says.

The Bank of Canada has raised its key lending rate five times since 2017, and in October, it signalled that rates will “need” to continue to rise to tame inflation.

With assistance from their bankers, businesses can improve the efficiency of their supply chains. One way to do this is to improve working capital minimizing the time taken to collect amounts owed from sales or extending payment terms with key suppliers to maximize their balance sheets, Mr. Skinner says. It is important to keep up to date with the different payments terms and risk mitigation tools that are available to assist with negotiations.

This can be challenging when long-term rates are also rising, but there are different ways to improve efficiencies.

For instance, clothing companies that have been sourcing their goods from China are minimizing the U.S.-China tariff impacts by looking to alternative sources including Vietnam, Cambodia or Bangladesh, Mr. Skinner says.

“Some of our clients have been making those moves. And with our global network, we are able to cover our clients’ entire international supply chain. So whether moving from China to Vietnam or Bangladesh, we can provide continuity of banking services as our customers reorganize their supply chain,” he says.

But it’s not just a matter of where you’re sourcing from. “It also depends on where your customers are and the industry you are in,” he says.

Some steel customers, for instance, rely on products that only particular mills can provide. Suppliers need to be nimble and work with these customers to navigate the new tariffs. In some cases, the manufacturer might have to absorb some of the cost; in others, the client will pay more.

It’s also important for manufacturers to keep a constant eye on updating the technology that keeps the supply chain going. This can involve everything from modernizing truck fleets to become more fuel-efficient, to updating the technology that manages inventory and payments.

Managing supply chains in Canada will always be challenging because of the physical size of the country and the layout of our economy, Mr. Skinner says. While our raw materials often come from more remote areas of the country, most production and consumption happens within about 160 kilometres of the border.

“We have infrastructure challenges with rail, for example. We have to ship oil and grain over long distances,” he says.

“Companies we work with are innovating, though. I was recently in Winnipeg and saw how grain companies have developed the capacity to add more rail cars to trains to ship more grain at once,” he adds.

“We look at solutions for our clients end to end – where they purchase, where they ship, how they get paid. With our strong sector experience in complex supply chains such as auto, retail and electronics – among others – it’s our job to help provide trade finance and risk mitigation solutions locally and globally.”

CONTENT PRODUCED BY THE GLOBE CONTENT STUDIO. THE GLOBE’S EDITORIAL DEPARTMENT WAS NOT INVOLVED.

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