Are you missing a trick by only focusing on businesses like yours?
As a manufacturer or producer, naturally you’ll be used to monitoring your competitors and other businesses in your sector. And there are many useful insights to be gained from knowing what measures they’re putting in place to weather changing trading conditions. But if you only focus on your peers – and businesses like yours – you could be missing out on some key learnings. After all, it’s not just producer businesses that need resilient supply chain strategies. Companies in all sectors form part of a supply chain – either their own, or as a key element of someone else’s. We spoke with a number of businesses in different sectors to see what measures they’re putting in place to both combat uncertainty and turn it into opportunity. Most importantly, we were keen to discover which supply chain finance management processes transcend industries, and what businesses in different sectors can learn from each other.
Why are retailers so good at monitoring demand trends?
A key element of any successful supply chain management strategy is monitoring trends. From analysing consumer demand to monitoring fluctuations in currency rates, and tracking the changing costs of materials – all made more pertinent by the COVID-19 crisis – you need lots of data at your fingertips. It helps you make more informed decisions and react to changing conditions. Retailers are particularly adept at closely monitoring a number of trends that could impact their operation. They trade in a fast-paced, highly competitive environment that’s always at the mercy of changing consumer preferences. So, they need to know what people want and be prepared for disruption.
As one group treasurer at a large frozen food producer tells us, his company closely monitors both ends of the chain. It helps them guarantee the availability of products, and also understand what people actually want – so they can meet demand without overstocking their warehouses. "Threats to our business come from different areas," he says. "These include disruption to our global supply chain, but also changing customer tastes."
Indeed, with such potential uncertainty in demand, and being subject to shifts in buyer trends, it’s essential for retailers to keep tabs on these fluctuations tightly. Many are investing in technology to help them monitor trends, react in near real time, and make sure their forecasts are as accurate as possible. "Our business is cyclical with one defined peak sales season," says the CFO of a luxury retailer. "We need at least three months production time to meet the demands of our peak sales period."
With such a long lead-in time, they need up-to-date insights into demand, or they could understock and miss opportunities to drive sales. Alternatively, they could over-buy and end up with cash tied up in unsellable stock. And with tight margins and fierce competition, there’s little room for error.
Tech like the Internet of Things and automation will affect supply resilience – improving manufacturing efficiency and shortening our production cycle. It also means we can be more responsive to demand and only keep what stock we need.
Are your insights good enough to help you fortify your supply chain?
As a manufacturer, while you might not supply directly to consumers you still need to understand what they want. Changing preferences could mean there’s suddenly less demand for some of your products and new demand for others – just look at the sudden increase in demand for personal protective equipment at the height of the pandemic. As such, you might need to adjust your long-term production planning accordingly.
Consumers are becoming more environmentally conscious, demanding products that are manufactured in a more sustainable way. Rather than being problematic, this could again create a potential opportunity. By adopting more sustainable processes, you could create a new USP for your products – generating increased sales with potentially greater profit margins.
Consumers are increasingly thinking about sustainability and the carbon footprint of the things they buy. That could have an impact on our supply chain operation.
What can you learn from capital-intensive industries about safeguarding supply chains?
While retailers focus on trends to keep their chain efficient, other businesses use different tactics. Capital-intensive businesses with a high percentage of fixed assets – like civil engineering or energy producers – are far less agile, so they protect themselves from disruption by diversifying their supply.
In short, it’s about making sure you don’t have all your eggs in one basket. As the group treasurer of a large mining corporation told us, “We rely on a diverse range of sources for our products to reduce dependency on just one. We also understand the importance of producing in countries with reliable, stable economies.”
Similarly, capital-intensive businesses often need to provide financial support to their suppliers. The treasurer of one global construction corporation helps suppliers get their money quicker. He says: "We started using a supply chain finance programme – our terms are now 150 days which helps with how our balance sheet looks, and suppliers get their cash earlier, which helps their businesses a lot." This sort of proactivity can help to ensure your suppliers have the ready cash flow to keep producing, while also the capacity to invest in their own product innovation. A bonus for both of you.
Do you invest in your supplier relationships as much as other manufacturers do?
Your supply chain is only ever as strong as the working relationships you have with them. To make your chain as effective as possible, you should invest time to create a good balance of trust, respect and mutually beneficial working conditions. Having clear up-front negotiations on payment terms can help you both plan for the future, and ensure you can both manage cash flow, with healthy working capital. You can secure better prices on purchases, and make sure they get paid quicker.
If we push our suppliers too hard – then we pay a higher price. A supplier may say to us that we can pay thirty days later, but then they will want to charge us more. There is a trade-off. We rely on good relationships with suppliers.
By sharing insights and data, you can better understand each other’s needs. This could mean investing in shared platforms that give you both increased visibility into each other’s business. That way you can track market changes and understand how they will affect both yours and your suppliers’ businesses. You can anticipate any potential disruption to supplies, or price changes, and plan accordingly. Equally, your suppliers can get insights into customer trends, see what’s happening to your demand, and adjust their production accordingly.
The introduction of digital ledger technology (DLT), for example, will help businesses create faster, more collaborative supply chains. When coupled with supply chain finance, DLT will enable businesses to see the impact of financing at every stage of the chain. So, procurement teams can make adjustments in near real time, influencing particular behaviours, reacting to new information, and driving business improvements.
This means both you and your suppliers can produce only what’s needed, without wastage or overspending. As the purchasing lead in a mid-size logistical equipment manufacturer tells us, "Ours is a fast-paced business… Our suppliers are critical to our business – we make sure we invest in the relationships and develop improvements in partnership with them. One project we’re working on is digitalising the end-to-end process with suppliers to give us the visibility we need on our cash flow forecasting."
Are you doing enough to strengthen your supply chain for trading in uncertain times?
Looking outside of your business – and your sector – can help you find innovative ways to strengthen your supply chain finance strategies. To really make a difference, though, there are some key questions that you need to consider: Are you too reliant on one supplier, or are you able to source strategically to meet changing demands? Are you able to share data and insights to get a full view of your supply chain? And how can you invest wisely to develop mutually beneficial supplier relationships that help you drive innovation while keeping your business cash rich?
Want to learn more? Find out how organisations in other industries are investing in technology and working with partners to create healthy supply chains that enable sustainable business growth. Sign up for more insights in your inbox.
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