The post-pandemic economy seems vulnerable to shortages and disruptions in ways not seen in decades. Treasurers and supply chain managers willing to embrace a ‘resilience-first’ mindset and invest in gaining end-to-end supply chain visibility will win out in the new normal, write NatWest’s Mirka Skrzypczak, Head of Working Capital & Trade Products, and Rowan Austin, Head of Trade Origination and Advisory.
The latest lockdowns in China, continued haggling over the post-Brexit trade regime, and the war in Ukraine are the most recent reminders that the increasing complexity of trade regulation, fast-changing international public health rules, and a sharp rise in geopolitical risk can lead to lost income and lower agility for businesses, especially for those that lack visibility across their supply chains.
Supply chains are now shifting from “just in time” to “just in case”. Holding more inventory, diversifying your suppliers (to some extent nearshoring or onshoring), and leaning on a broader range of transportation methods have become enduring features of doing business in the post-pandemic economy. All of this means supply chains are becoming much more complex and challenging to manage.
This is partly why we see a big (and we think healthy) change in mindset among a growing number of our clients: a shift from optimising cost to optimising resilience. Along with adapting physical supply chains, this means greater focus on gaining end-to-end supply chain visibility, by using new and emerging technologies to plug important data gaps and cast new light on vulnerabilities lurking in the shadows.
Gaining end-to-end visibility on supply chains is about more than just risk management and resilience. It can enable treasurers and supply chain managers to play a more strategic role and develop new capabilities, allowing business to break down internal silos, drive new efficiencies, and optimise capital deployment.
Addressing risks and new customer requirements: it’s all about data
Businesses have more opportunities than ever before to address risk and drive new efficiencies through technology and better use of data. Real-time data, or near real-time data to support everything from order placement to financing is a goal long pursued by supply chain managers, and is helping many businesses increase supply chain transparency in order to help them get better at detecting, identifying, and understanding potentially critical disruptions; cater to changing customer preferences; and address sustainability risks:
Scenario planning, end-to-end: more than ever, businesses need to understand how disruptions to the legal or operating environment could affect their suppliers – and suppliers’ suppliers – and proactively determine alternative sources for goods and cost-effective contingencies. This is driving many to embrace new dynamic modelling platforms that put artificial intelligence (AI) and diverse data streams to work anticipating future supply chain disruptions.
Customisation and granularisation becoming the norm: in some sectors more than others, customers are demanding more individualisation and customisation – driving constant inventory changes that require far more transparency and granular tracking (including in some cases LIDAR and RFID technology) across the entire supply chain, from source material ordering and inventory management to logistics and end-product delivery.
Everything on demand: this is quickly becoming the norm, driving more shops online and requiring them to embrace a digital-first mindset that prioritises scalability across the business. Supply chains need to be at the centre of that shift and need to be flexible and adaptable in an increasingly demand-led economy.
Managing environmental, social and governance (ESG) risks and prioritising sustainability: as we’ve written previously, businesses must contend with a wide range of ESG risks as customers, regulators, investors, and the public increasingly expect them and their suppliers to be more socially responsible. And with 80% of a company’s emissions coming from its supply chain rather than direct operations, all businesses and their suppliers are increasingly expected to contribute to decarbonisation and climate change mitigation.
This is driving businesses towards more proactive engagement with suppliers, better end-to-end mapping of the supply chain, greater tracking of the regulatory environment where suppliers operate, and pushing them to gain deeper knowledge of each supplier’s ESG risk profile including carbon emissions and the like. Data disclosure and verifiability and deeper supplier engagement is central to those efforts.
End-to-end supply chain visibility is helping businesses thrive and technology is the key enabler
Greater supply chain visibility is about more than just risk management: it can also bring a wealth of benefits to the finance function – and the boardroom – through improved access to cost-competitive funding, more financial flexibility, greater efficiencies and better regulatory compliance and security. New and emerging technologies are empowering supply chain managers and treasurers across sectors to play a more strategic role influencing the bottom line and corporate strategy like never before.
Breaking down internal data silos is helping businesses get closer to customers: embedded analytics that combine real-time or near-real time data from marketing, sales, inventory management and delivery is bringing every customer interaction closer to the supply chain. This enables companies to pivot more quickly in the face of evolving customer preferences, and helps drive more proactive supplier engagement.
Working capital management technology is helping businesses improve automation and free up spending for more profitable activity: alongside banks, a growing group of fintechs offer a wide range of services like electronic invoicing and supplier management, and are changing the way buyers and sellers interact, helping both improve liquidity, reduce variability in payment timings, and free up working capital for more profitable uses.
Digital onboarding is helping businesses adapt to new regulations, speed up processing times and broaden funding access: manual supplier onboarding – the status quo for many – is increasingly weighing on businesses as regulatory requirements force them to collect an ever-increasing stock of records on suppliers. Digital onboarding is essential for businesses if they are to adapt to ongoing changes in the regulatory environment. It can also help suppliers broaden access to funding through improved data collection and greater transparency.
“Smart contracts”, enabled by blockchain, is making trade finance more efficient and secure: the rise of blockchain technology among banks and funding consortiums has led to the emergence of “smart contracts” in trade finance, digital agreements that contain and automate the execution of terms and conditions agreed by transaction participants. These smart contracts help reduce the cost of gathering and processing information, drafting and negotiating contract terms, monitoring and enforcing agreements – and help make trade more secure and transparent. Though nascent and not without its challenges – many legal systems still only recognise the status
of paper documents in international trade – smart contracts provide a clear sense of the direction of travel for banks, businesses, and regulators.
Staying competitive starts with the supply chain
The risks business face in a post-pandemic economy makes the need to digitalise supply chains all the more urgent. But end-to-end supply chain visibility is about more than just risk management. It can have a dramatic influence on the bottom line by creating new efficiencies, help you foster higher quality engagement with suppliers, and enable your business to redistribute capital to more profitable projects. Yet it can take months, if not years, to properly digitalise supply chains and related financial operations. It will take prudence, planning and proactivity to make your business able to take full advantage.