It’s time for companies to rethink the structure and value of supply chains

Zak Sivalingum, Regional FNB Director at FNB Commercial

In addition to the obvious pressures on revenue that Covid-19 and the global lockdowns imposed on businesses around the world, the crisis has also revealed concerning weaknesses or instabilities in the supply chains of many organisations.

Depending on the nature of the business, these issues range from the instability of the current supplier base to challenges with sustainable production and distribution. In many cases, companies have faced a double whammy, with supplier and production/distribution issues creating huge challenges.

For many companies, these supply chain challenges have been further exacerbated by technology failures or gaps, as IT infrastructure has crumbled under the added and unexpected strain of remote working arrangements and remote working environments. suddenly digitized consumption and exploitation.

Even though it looks like the world is gradually emerging from the weight of the pandemic, these global supply chain challenges are likely to continue for some time to come – especially given the logistics backlogs that will likely take many months, if not years. , to resolve.

The only appropriate response to these long-term challenges is for business leaders to comprehensively and critically review their supply chains and, if necessary, redesign them from the ground up. Many organizations have already undertaken this type of review, but for the most part it took place at a time when Covid-19 lockdowns demanded an emergency response aimed at short-term business survival.

Today, the scenario is quite different, and the reassessment of supply chains must focus less on survival and more on ensuring they have the stability and resilience to inform sustainability, profitability and growth. long term of the business. This requires business leaders to broaden their understanding of supply chains in general, taking a much more holistic, end-to-end perspective and ensuring there is a robust, scenario-based framework to manage and, if necessary, mitigate supply chain risks.

Key to such supply chain risk management is the more deliberate and comprehensive integration of supply chain finance, including even closer working relationships with banks and other funding to ensure they have a complete view of the organization’s supply chain transformation and can design innovative solutions. provide the necessary working capital when one of the strategic or environmental scenarios materializes in the future.

In today’s (and tomorrow’s) business environment, stable supply chains also require a shift in focus from prioritizing inventory over everything else. The pandemic has demonstrated the importance of a more balanced, even balance sheet, approach to supply chain optimization, with payables and receivables given equal weighting as inventory levels to ensure that levels of working capital remain supported in the event of difficult periods.

It is also imperative that supply chain managers make a habit of looking beyond their immediate supplier base as part of their resilience building strategy. Having a geographically diverse supplier base might have been enough to ensure the level of security of supply required before Covid-19, but future supply chain efficiency could be hampered by concentration risks outside of their immediate structure. The savvy supply chain manager is one who understands this and provides visibility far beyond their own chains.

The combination of rapid digitization and advances in data analytics also offers a useful way to ensure this broader supply chain visibility, and also offers other benefits to businesses, through the prioritization of digital journeys. by financial institutions. The ripple effect of this rapid digitalization of financial services will ultimately be the transformation of traditional trade finance, allowing organizations to better align their financing options to align with their more digital operations, and also to leverage progress in financing mechanisms to take advantage of opportunities. to strengthen the sustainability of their supply chains.

Finally, tomorrow’s efficient supply chain will be much better at balancing the ancient holy grail of cost containment with greater reliability and increased speed. For many FNB clients, this has meant looking closer to home, where possible, for providers who can meet their needs. Many have outsourced some or all of their production inputs, negating any possible impact of logistical bottlenecks on their inventory levels in the future. Although this may be a slightly more expensive option, the benefits for many of these businesses far outweigh the financial implications.

For companies that are unable to outsource their supply chains, there is still light at the end of the backlog tunnel. The logistics crisis caused by Covid-19 has prompted long-awaited out-of-the-box thinking by freight solution providers, with many expanding their offerings and others undergoing significant consolidation – driving the emergence of counter freight solutions unique with the ability to circumvent future distribution challenges using alternative modes of transportation.

All things considered, supply chains have become a critical part of the vast majority of businesses, presenting a significant risk if not structured and managed properly, or a huge store of potential value if they are stable, agile and resilient. . Moreover, an efficient supply chain is also an invaluable contributor to economic growth, especially if some or all of it includes local or national suppliers. All of this means that supply chain optimization is not just a business imperative, it is a socio-economic responsibility. The more stable and sustainable South African companies’ supply chains are, the healthier SA Inc becomes. And a healthy and growing national economy is arguably the most valuable asset a business can have.



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