The global supply chain has been in crisis for many, many months, and companies are still very concerned about being able to deliver their products or services with acceptable margins.
Raw material shortages, transportation delays, skyrocketing shipping costs, and exponential growth in demand are just a few of the problems companies have been trying to overcome or solve. Other dynamics, adding pressure to fragile supply chain networks, include rising inflation, interest rate hikes, and rising geopolitical tensions that have skyrocketed global prices for all commodities.
According to the CFO Survey, a study conducted quarterly by Duke University and the Federal Reserve Banks, CFOs are pessimistic about the economy, and while they expect prices to decline a bit by the end of 2023, they believe the average will remain high, with inflation being the main concern with 31% of its respondents expecting negative real growth.
Although about two-thirds of CFOs report that current interest rates have not yet affected their capex or non-capex plans, nearly 40% say they have already reduced their spending plans or plan to reduce them if interest rates rise another two percentage points. However, it is worth noting that all CFOs identify the supply chain itself as the main risk issue for their organizations. But not for this year but for all over the next decade.
Against this backdrop of complex supply chain challenges with rising costs, many companies struggle to plan effectively for cash flow and revenue. In this sense, companies are being myopic and are either transferring the cost to consumers or absorbing the costs themselves, to the detriment of their results. Neither scenario is sustainable, nor is stockpiling a strategy to manage a potential loss of revenue, yet more than half of respondents have indicated that they are using these approaches.
Companies can’t look for short-term solutions to their supply chain problems, even if these measures help relieve pressure momentarily. These same managers who implement these measures anticipate that the supply chain risks will continue to be a trend in the next decade, and for this reason, it is not possible to put hot rags on the subject but require long-term solutions. Operating the supply chain as a cost centre, prioritizing agility and profitability above all else, and postponing supply chain network redesigns are not sustainable approaches in this volatile environment.
Flexibility and understanding of critical end-to-end risk exposures in supply chain networks are critical to building the right resilience, and in this regard, financial institutions can help make the supply chain more flexible, agile and predictive to face the challenge of future interruptions. Banks can put all the financial instruments and the most powerful technological tools to provide the differential value that companies need.
This differential value that allows connecting the supply chain with the financial forecasts that technology provides can give companies an idea of what they can and cannot control and, more importantly, what they can improve to find smart financial solutions that help them address supply chain issues in the midst of these ever-changing market conditions.
Technology, especially Artificial Intelligence -powered machine learning and solutions that offer real-time insights and predictive capabilities, can help finance the supply chain if all the inside teams work in partnership to connect supply chain scenarios with forecasting and financial planning.
Traditionally, purchasing and finance teams have not had proactive collaboration. By getting these teams to work more harmoniously, organizations can identify the best near-term solutions to alleviate immediate supply chain disruptions and pressures while helping the business make more informed strategic decisions that will make its supply chain better and supply more resistant, flexible and predictive over time.
This article was written by Ms Monica Martin Blanco, FCI SCF Consultant, for the February 2023 edition of the FCI In-Sight Newsletter.
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