Supply chains always include risks, whether that’s vulnerability through dependence on certain suppliers or external demand spikes for critical products. We’ve put together the following supply chain risk management checklist so you can prepare to tackle the challenges your supply chain might present.
Last month Bob Glotfelty, VP of Customer Success at Taulia, Helen Whitehouse, Head of Procurement Centre of Excellence at Mars Inc and Sam de Frates Senior Director, Commercial Digitalisation at Mars Inc were guests on a webinar series surrounding the financial impact of COVID-19.
In this one hour Procurement Leaders webinar, the panel dove into an insightful discussion on ‘Procurement’s role in protecting against financial risk in the supply chain’ (you can watch the recording here).
First and foremost, it is important to ensure that your business supports your supply chain wherever possible. In 2019, 38.8% of suppliers were already suffering from late payments as shown in Taulia’s 2020 supplier survey. With the backdrop of COVID-19 and the economic crisis that followed, businesses are paying their suppliers even later, further exacerbating the problem.
In response to this and as a way to better manage cash flow, there has been a 208% increase in suppliers electing to take early payments – proving that liquidity is top of mind for businesses during the COVID-19 crisis.
Whether you choose to support your suppliers through: dynamic discounting and pay them early using your own cash, or provide them access to third-party funds through supply chain finance, there has never been a more pressing time to provide (particularly small) suppliers access to liquidity.
In addition to liquidity, another very important factor to ensuring your business stays afloat is how well you collaborate with your suppliers and understand the external and internal risk factors that may impact their businesses.
Here’s our quick supply chain risk checklist, which provides some useful tips for assessing and beginning to manage the risk in your supply chain:
- Make sure your supply base is segmented. You need to know which suppliers are critical to business, which suppliers are vulnerable, and ensure your business is not over-depending on any suppliers. By segmenting your supplier base, you know which are your essential suppliers and can prioritise their enrollment onto an early payment programme for supply chain finance or dynamic discounting. This will help you manage and mitigate risk within the supply chain.
- Look at an internal and an external market analysis. This can warn you about things like demand for a specific product overtaking the supply capacity of that product. This would then cause a risk dynamic on your supply. Being aware of these possibilities and having secondary suppliers as back-up can minimize this risk.
- Get a good understanding of who your suppliers are as an operating entity. Use websites such as Dun & Bradstreet to see if the supplier was already financially stable. You should also check debt ratios and unemployment rates in the city or area of the supplier as this can indirectly cause supplier issues. This knowledge will allow you to pick-up tell-tale signs that your suppliers could be struggling. Examples of these signs can be:
- Requests for early payment
- Chasing payment right when it is due
- Credit ratings for a supplier that’s a public company
- The supplier’s financial choices over the last 12 months (ie. big purchases or expansions could lead to the supplier being over leveraged)
Six months in advance, you can start seeing indicators that will point to the supplier going insolvent – cutting salaries, lay off, cutting budgets or changing to a lower cost product.
In short – every business needs cash flow, and this is key in making it through the current economic crisis. Taulia can help you support your suppliers and ensure the success of both your business and theirs. If you would like to learn more about any of the resources available, please contact us here.