7 ways to strengthen your supply chain while driving growth

The results of our 2023/24 Supplier Survey delivered some key insights on how businesses are strengthening their supply chains to drive business growth in challenging circumstances.

Businesses continue to find a wide range of challenges in the current environment, from geopolitical uncertainty to higher interest rates and inflationary pressures. But while navigating these obstacles, they’re also focused on harnessing opportunities for growth.

Taulia’s recently published 2023/24 Supplier Survey provides a snapshot of how these challenges manifest in reality, including what specific problems they cause for businesses around the world. It also provides insights into the measures they are taking to overcome them.

Over 11,000 businesses took part in the survey, from SMEs to large corporations. And the results seem to indicate that to balance business resilience with ongoing growth, companies need to strengthen supply chains and ensure they’re as robust as possible.

With this in mind, the following seven strategies can help companies drive growth in a challenging economic environment while continually strengthening their supply chains.

1. Harness opportunities for growth

One of the key findings from our survey was that 85% of respondents viewed the business environment in the coming year with positivity, with almost half (48%) focusing on growth.

Companies wishing to target growth should prioritize areas where the business has a competitive advantage. This might mean concentrating on core products and developing adjacent areas of business, while scaling back on areas that may be less profitable. Companies can also target new and fast-growing markets without losing sight of the need to retain local market share.

At the same time, companies can position themselves for success by making efforts to cut costs (without sacrificing quality) and pivoting their activities where necessary.

2. Mitigate the effects of inflation

While targeting growth, companies also need to manage the effects of inflation on their businesses. Impacting profitability and cash flow, inflation can pose an existential threat to even the most established and successful of companies. And while inflation may have reduced since the record levels seen in 2022, it remains above target rates in markets such as the US and the UK.

By monitoring inflation and interest rate trends closely, and assessing their impact on costs, companies will be better placed to adjust their pricing and financing strategies. In some cases, companies may adopt inventory management solutions such as vendor managed inventory (VMI) to purchase goods at today’s prices that can be sold later. Other key steps include regularly reviewing inventory levels and streamlining accounts receivable processes.

Companies also need to be mindful of the impact of inflation on their suppliers. In an inflationary environment, extended payment terms can mean that when a supplier receives payment for an invoice, the total value has already been somewhat eroded.

This was reflected in Taulia’s survey, with 50% of respondents mentioning inflation as a top-of-mind issue. By offering early payments via programs such as supply chain finance, companies can mitigate the impact of inflation on their suppliers.

3. Optimize financial planning and cash flow management

When focusing on growth, it’s important for businesses to plan ahead – and this means reviewing present activities and future goals, as well as evaluating current and projected resource needs, particularly in an environment fraught with economic uncertainties.

Companies also need to have a comprehensive cash flow management strategy in place to monitor, manage, and maximize cash flow over time. This may include taking steps to shorten the cash conversion cycle (CCC) by offering early payment discounts or chasing overdue accounts more proactively.

Where payables are concerned, companies might choose to increase their days payable outstanding (DPO) by delaying payments – but this can have a negative impact on suppliers. Alternatively, solutions like supply chain finance can support both buyers and suppliers.

4. Digitize supply chain management

Companies with large or complex supply chains can find it difficult to oversee and manage their suppliers and maintain effective relationships. By deploying suitable digital supply chain management solutions, buyers will be better placed to source and onboard suppliers efficiently, negotiate contracts, and measure supplier performance against agreed KPIs.

Effective monitoring can mitigate any failures that could result in disruption to the company’s operations while ensuring that suppliers are paid on time for the goods and services supplied. Meanwhile, supplier self-service tools can help improve supplier relationships by minimizing mistakes and speeding up dispute resolution.

5. Minimize supply chain risk

Risk can come in many forms and, as recent events have demonstrated, supply chains can be vulnerable to external disruptions such as natural disasters, conflicts, and pandemics, with the possible impact of such disruptions ranging from product shortages to changes in customer behavior. Our survey found that 22% of respondents were concerned about supply chain disruption, while 20% cited geopolitical challenges.

Even without major disruptions, pressures on suppliers can lead to fluctuations in the cost of raw materials, products, and services. To address these challenges, organizations should focus on improving the resilience of their supply chains, gaining greater visibility across the supply chain, diversifying suppliers, and developing alternative sourcing options.

6. Address late payments

Between 2016 and 2019, our previous supplier surveys indicated that late payments were gradually declining – however, that trend has now reversed. According to this year’s survey, over half of suppliers are being paid late by their customers on average, with only 44% receiving payment either early or on time.

From the buyer’s perspective, the reasons for delaying payments may range from simple oversight to a tactical decision to extend DPO. However, delaying payment can have harmful consequences, both for suppliers and for buyers themselves. A company that pays suppliers late can damage supplier relationships and create an impression of being in financial difficulty. It may even lead to less favorable pricing in the future.

Smaller businesses are less equipped than larger organizations to withstand adverse economic circumstances and can be heavily reliant on receiving prompt payment. By paying suppliers in a timely fashion, buyers can strengthen their relationships with suppliers and improve their ability to negotiate better deals.

7. Leverage early payment solutions

With late payments looming large for suppliers, it is no surprise that interest in accessing early payments via Taulia’s platform continues to grow. The survey found that 25% of suppliers expressed an interest in taking early payments, every time and for every customer. Meanwhile, 61% said they were interested in taking early payments at least some of the time.

Buyers can meet their suppliers’ appetite for early payments by offering programs such as supply chain finance and dynamic discounting:

• Supply chain finance (SCF) allows suppliers to receive early payment on invoices and enables buyers to extend payment terms if necessary. Suppliers can access funding based on the credit rating of the buyer (rather than their own), and it is typically at a lower cost than other forms of financing.

• Dynamic discounting (DD) enables suppliers to receive early payment in exchange for a discount. The amount of the discount depends on how early an invoice is paid – the earlier the payment, the greater the discount. For buyers, these discounts mean a lower cost of goods, representing a risk-free return on their cash. For suppliers, early payment discounts speed up customer payments, improving cash flow and reducing days sales outstanding (DSO).

Crucially, companies may have different needs at different times due to factors such as seasonality or changes in their business strategy. A flexible early payment solution offers the ability to switch between self-funded dynamic discounting and third-party-funded supply chain finance – or even to run both programs simultaneously.

Working together

A strong and healthy supply chain is in the interests of both buyers and suppliers. Smaller businesses tend to be more flexible and better able to respond quickly to changing market conditions – but they can also be vulnerable to delays in the receipt of payments. Many have limited access to affordable credit, making it difficult to ride out adverse conditions or build reserves.

By working with suppliers to overcome these challenges, buyers can strengthen supply chain resilience and protect their own operations from the risk of disruption while facilitating growth. Treating suppliers like partners not only helps build strong relationships but is also vitally important to the health and success of the business.

To find out more, read Taulia’s 2023/24 Supplier Survey.