Never waste a good supply chain

Tips for supply chain survival in a tight cash flow environment

I’m seeing growing industry fear that cash is going to stop flowing as needed.

Fear is playing out in many forms. Not all nice, but definitely all focused on keeping more cash in-house.

Here are some examples:

Example 1: A business supplier for cycle stock sent an invoice for inventory delivered. Recently the invoiced company realized that, after being on autopilot to pay submitted invoices, the inventory delivery had never been made.  Currently, the supplier is not budging on reimbursing the payment.

Another example: A well-known payment processor decided on a new policy to hold collected payments for 21 days – for the stated good of the companies using their services.

A third example: Contracts are being placed on hold. And not just those for short-term contractors.

A final example: Some companies shut down purchasing new inventory in order to work down the oversupply of inventory left over from Covid’s supply chain panic buying. Long lead time items are not being repurchased since some inventory remains in stock, but not enough for historic demand. This is leaving supply chain professionals wondering how orders will be filled later.

My conversations with clients reveal nervousness about a potential recession. Inflation. The potential for the U.S. to fall off the debt ceiling cliff. Fewer business loans. These could result in supply chains seizing up due to a higher dollar and a lack of product flow because of global financial system disruptions.

So what can you do, in addition to all that you are doing now, to help your company and its supply chains survive?

Below are some options:

  • Review critical supplier contracts for adjustment

Small and midsized businesses obviously have less capacity and fewer capabilities at their disposal than large enterprises. Nothing new there. Lately there has been a focus on integrating more closely with the supply base. Changing from a “give us the lowest cost” stance to a more relationship and results focus.  You’ve possibly been the person in charge of these efforts.

What if you also threw in some contract adjustments for your critical suppliers?

For example: use a blanket contract that promises purchase of a set amount of inventory over a set period of time. No or lower purchases made than the minimum stated? A penalty would be paid to the supplier.

So why use this type of contract? It allows the supplier to plan on a certain amount of paid work during a time when paid work may be difficult to come by – sometimes so difficult the entity closes and you are out a key supplier.

The option may cost your business a bit of money. Perhaps. But, if the market slows more than expected, your supply chain stays intact. An intact supply chain provides you with better response times and greater capability to adjust when demand comes back.

Compare the cost of a blanket contract penalty to the cost of finding and bringing in a new supplier that will meet your demand needs and your supply chain performance requirements.

  • Shorten payment cycle times

Cash-to-cash cycles have been lengthening and getting longer. Similar to example 2 above.

You may even have been the person holding conversations about lengthening payment cycle times with your partners due to changing policy. Probably wasn’t fun.

As you know, long payment cycle times can be deadly to small and midsized businesses lacking in extensive cash resources. There isn’t the loan availability now like there used to be. Even if the business qualifies for loans, can it handle repeatedly bringing in higher priced money to pay its bills?

What if?

For your critical supply chain partners who lack more extensive cash resources, what if your company shortened the payment cycle time. Say down to 30-days?

Yes, the cash-to-cash cycle time finance watches will be less pleasing for internal reporting.

However, your company will be preserving the goodwill of your supply chain partners. There may even be a newly found willingness to go the extra mile to keep you happy.

By relieving some of the financial stressors that endanger partner survival while everyone else is increasing payment time, you become the partner of choice for critical suppliers. Those same critical suppliers that may have to allocate inventory deliveries in a tight market.

  • Use Collaborative Planning, Forecasting, and Replenishment

By letting your key suppliers and partners in on what is actually happening with your demand and how you plan to handle whatever it is that is coming your way, or not, you provide your partner base with the ability to prepare.

You also give them the opportunity to provide you with options that you may not have considered. Or knew existed. Options that may help ease your financial burden.

Long known as a best practice, Collaborative Planning, Forecasting, and Replenishment isn’t always used formally. Yet it provides powerful help with your end-to-end supply chain agility as risks materialize.

Why? Because you are more in tune with your partners’ capabilities which leads to better decision making for the end-to-end supply chain.

  • Is your company over-staffed for demand levels?

It is tough to find great people. Even tougher to get back those who know your supply chains and business operations.

What if you don’t have to let anyone go?

What if you create tiger teams that are then offered to your small and midsized partners to help improve operational efficiencies and supply chain performance?

While your company would still have to pay salaries for tiger team members, you would be obtaining in-depth knowledge of your partners’ capabilities, their potential, and how to best work with them based on the uniqueness of their businesses.

Smaller partners would be relieved of the burden of engaging 3rd parties that may or may not help them obtain results your company appreciates.

Plus, you will increase your supply of partner goodwill yet again.

Especially if you help keep the business from going under which, yet again, relieves you of having to find a new partner.

  • Investing in partners

Would it be possible to help provide the change needed from the tiger team’s evaluation by funding part of the systems or training, or …? Maybe providing space in existing systems in your company? Perhaps this help could slowly, over a set amount of time, come out of the pricing of the supplier’s product you purchase. Not enough to hurt the partner’s ability to pay bills or remain profitable, but a little bit to help your spend?

  • Rethink inventory positioning and pricing

If the currency your company uses for pricing becomes more expensive than the currency of your key customers, how can you ease their financial burden when choosing your product? It’s now the higher priced option.

While value pricing is what I encourage, difficult times call for nuanced solutions.

A key customer may be a high-volume purchaser. Or a key customer may be regionally respected in a new market you are just beginning to enter. What about those who are in existing markets where growth is expected over time? The first question to answer is what makes a customer key for your company.

Once you know that, ask where each customer is located.

Then ask, how will financial tightening affect that customer’s decisions to purchase your products or services?

You can model, plan, and adjust inventory positioning ahead of time. Of course, this assumes you’ve asked the first 3 questions.

Perhaps there is little need for most inventory in a region, with the exception of a few specific SKU’s. Start with SKU optimization.

Even better, is there a regional warehouse closer than the regular delivery warehouse shipments for those slow moving, low volume goods? Is it possible to move the slower inventory from there, eliminating longer transit times, limiting customs stops when possible, and lowering your carbon footprint?

You could also adjust from storing fully completed finished goods to storing almost finished product. Leave the final form, fit, function, until the actual order comes in. This allows goods to be finished in country with shorter transport times to the end customer. This is called ICV, or In Country Value. Another goodwill creator. It may also cost less while providing room for price relief.

Perhaps you can open an in-country repair facility to handle your forecasted amount of demand in the area. This should eliminate more costly, newly  minted finished goods stock as well as lengthy asset return and replacement transportation and fees. It may also reduce labor, handling, and other costs. It should definitely improve your ESG (Environmental, Social, Governance) activities.

  • Advance your capabilities

With all that has been going on in supply chains, your answer to increasing your capabilities may be a resounding “that’s all I’ve done these past few years”.

Yet, there is always something left on the table due to resource shortages. While Wall Street may applaud releasing people from a company’s employ, could you use them to improve company value creation?

Remember the airline companies that waited until too late to rehire staff. Staff that had to be found first. Staff that had to be trained. Staff that didn’t know company policy. As you are remembering – remember customers’ reactions to resulting delays and other non-value add issues.

Covid taught us that the on-off switch moves quickly and customers don’t want to wait for you to reset.

There are always options for your customers.

But you don’t want your customers to take those options. They may not come back.

So, what is critical to develop now?

Do you have plans in place for when the “on switch” is flipped? You should.

Do you have early warning signs of demand recovery embedded in your supply chain and business processes? You should.

What caused your supply chains pain during the Covid recovery? Do you have a plan to eliminate a repeat of that painful experience? You should.

Even better, you have skilled people with just enough time to help create and test those new plans.

Let me know if any of these ideas are helpful to you and your supply chains.

I look forward to hearing from you.

#supplychain #recession  #debtceiling #CPFR #CollaborativePlanningForecastingandReplenishment #supplychainpartners #suppliers #cashflow #inventory #performance #skillsets

Dr. Cynthia Kalina-Kaminsky, CEO of Process & Strategy Solutions, helps companies successfully innovate and transform supply chains to maintain your strategic goals and customer supply chain performance. Process & Strategy provides advanced, virtual, supply chain training with hands-on development of supply chain performance, trade-offs, metric hierarchies, and results. Click here to learn more


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