Building Supply Chain Resilience A Financial Outlook

1. Building Supply Chain Resilience A Financial Outlook An unplanned disruption in the supply chain can trigger a permanent loss of revenue, a financial hiccup, or even lead to bankruptcy. Businesses that are unable to respond quickly and effectively to such emergencies are at risk of losing customers permanently. There is no denying that natural disasters and man-made calamities have become more frequent and costlier. These events lead to disruption which affects the smooth functioning of businesses and also poses threats to their existence. The consequences can be catastrophic for an organization if its response is below par. Fortunately, there are many measures organizations can take to make their supply chains more resilient, which will help them overcome disruptions and lead them towards recovery faster than they might expect. Financial Implications of a Disruption A disruption in the supply chain can lead to the following financial implications. Devaluation of Inventory A devaluation of inventory is one of the most common effects of a supply chain disruption. This is because disruptions make it difficult to move inventory to its intended destination. If a distributor is unable to get the products to retailers or end customers on time, the customers will be forced to make do with an alternative product. When this happens, more often than not, the customer ends up dissatisfied with either the product or the services leading to the business getting affected negatively. Loss of Revenue A loss of revenue is another important financial implication of a disruption in the supply chain. A disruption can occur when the supply chain is stretched too thin and is unable to meet the needs of customers. If a business uses a distributor who fails to deliver products to the retailers, then customers will be forced to go without the products. This loss of revenue can be significant if the disruption lasts long enough.

2. To help you understand better, here are a couple of examples that you can relate with and understand the implications. · Customers may have to wait longer for a product or service they have purchased which will decrease the demand and cause a loss in revenue. In the case of perishable goods, if they are unable to be transported in a timely manner, their value will decrease significantly, and the business will lose a significant amount of money. · Some goods like raw materials might be perishable and need to be transported quickly to a factory or other manufacturing site to avoid being spoiled and useless. If there is a disruption in the supply chain and those goods cannot be delivered on time, the company will have to shut down the production process until the goods arrive. There is also the possibility of a disruption causing products to be delivered to the customers before they are actually needed. This could cause the products to go bad before they can be used, resulting in a loss of revenue for the business. Major implications also occur in case of a strike, a disruption in the financial supply chain, or an unplanned event like the death of the CEO. For an organization, the cash flow crisis can be a short-term problem, or it can become a long-term issue. If a business is unable to recover quickly, it will have to borrow cash or issue more equity to tide over the shortage. The long-term impact of cash flow disruptions can be devastating because they can spiral into a debt crisis. How Building Resilience Helps Supply Chain Finance If an organization has a strong supply chain finance and is resilient to disruptions, it can be confident that customers will receive their orders on time, and the revenues will be generated on schedule. A resilient supply chain can help organizations reduce their costs and increase their profitability. In addition to this, a resilient supply chain can also help organizations improve their customer satisfaction and enhance their brand value. Some of the stand out benefits of a resilient supply chain are. · A resilient supply chain can take care of disruptions with minimal hindrance and provides great flexibility. It enables organizations to accommodate changes in demand and other variables like the weather.

3. · It provides resilience against extreme events and makes it easier to withstand natural disasters, cyber-attacks, etc. This means that the supply chain will be able to continue operating, despite the event. Simultaneously, it also helps understand potential risk factors and enables teams to manage them. · It will comprise strong governance practices, which means that its members will have a common understanding of their roles and responsibilities. · Resiliency also means ensuring that sufficient liquidity is available to all stakeholders across the supply chain and business do not get into a cash crunch which will adversely impact operations. · A resilient supply chain will be able to bring transparency into its functioning, which will help members learn from past mistakes and make improvements to the supply chain. Disruptions can be unpredictable, so it is difficult to predict the financial impact they will have on the business’s bottom line. A resilient supply chain can help organizations respond to these disruptions and reduce the negative financial impact. Supply Chain Finance Platforms Supply chain finance platforms are growing in popularity as a way to fund the growth of a supplier’s operations with a minimal impact on cash flow. These platforms are designed for supplier financing and are used to deliver upfront capital to suppliers in exchange for a deferred payment, usually over 12 months. This allows suppliers with limited financial resources to grow their businesses without impacting cash flow, which could otherwise be tied up in loan repayments. With the number of suppliers requesting funding increasing in recent years, a number of platforms have emerged to meet the growing demand. With more businesses working on a B2B model, the level of interaction between parties has increased, which means that managing cash flow and risk has become more complicated.

4. Supplier finance platforms have been developed to help companies with this, enabling participants to share relevant information, such as payment terms and inventory data, and to receive financing from a third-party provider. All transactions are recorded and audited to ensure that all parties have been honest and have complied with their contractual obligations. Trends to Watch Out for in Supply Chain Finance The following trends are considered crucial in the enhancement of Supply Chain Finance. These trends mostly have a positive impact on the smaller organizations and the SMEs. · Shortening the Payback Period: This can be highly advantageous should a business organization decide to take it up given how simple the concept around this is. It essentially means, the shorter the payback period, the less it impacts the cash flow. The added bonus is, Supply Chain finance providers are often looking for shorter payback periods and are likely to agree with it in a blink. · Increased Use of Accelerated Repayment: Supply chain finance is certainly going to have positive effects if the repayment process is accelerated. Several businesses are using accelerated repayment schemes which help them lower their monthly repayments. It paves the way for them to pay back the funds faster and also reduces the impact disruptions may have on the cash flow. · The Rise of Crypto Currencies: Blockchain plays a critical role in enhancement of Supply Chain Finance. The growing popularity of crypto currencies such as Bitcoin, Ethereum, and Litecoin has created a proverbial demand for supply chain finance platforms that allow people to make payments via crypto. This not only increases the number of companies engaged in supply chain finance but also has a positive impact on the sector. This is considered a massive trend simply because of the magnitude of users and investors that are involved here, and it also enables execution of new trade finance products such as deep-tier financing. · Use of AI and ML: The use of Artificial Intelligence and Machine Learning to control and manage the cash flow in Supply Chain Finance is also swiftly turning out to be a major trend. Technology can contribute in making the financial outlook better just as it does with the management aspect of Supply Chain. The rise of e-commerce and easier access to platforms enables organizations to track finance

5. efficiently and also maintain proper records. The application of AI and ML makes it all the more convenient as these technologies can keep the concerned party updated about every transaction in real- time Conclusion The supply chain is responsible for moving the products that we buy and sell from one location to another. In order for these products and commodities to be delivered to their destination, they need to be shipped. These shipments are often carried out by air, land, or sea. The supply chain is a very complex mechanism, and it is not uncommon for there to be disruptions in the system. With the rise in natural disasters, man-made catastrophes, and other unforeseen circumstances, the supply chain is becoming less and less resilient each day. Organizations that want to protect their revenues, assets, and reputations need to do what they can to make their supply chains more resilient. There are various ways that businesses can achieve this, such as by choosing a resilient shipping method, minimizing the impact of disruptions, and improving the overall efficiency of the chain.