Last year around half of the global supply of neon, the colourless, odourless gas that goes into manufacturing semiconductors, came from Ukraine. A by-product of the steel industry, two companies, Ingas and Cryoin, based in war-ravaged Mariupol and Odessa respectively, supplied semiconductor manufacturers around the world until the Russian invasion disrupted their role in the industry’s complex supply chain.
The car industry, which like semiconductors depends on a globalised supply chain where outsourced manufacturing capabilities feed key factories, is also struggling because of the war. Around 17 specialist factories in Ukraine manufacture wiring harnesses used to group and guide the 1km long snake of cables inside a vehicle that form a key part of a car’s electrical system. Now disrupted production from Ukraine has impacted European car companies including VW and Porsche’s ability to source the vital component. Elsewhere, the food industry is going to have to find alternatives to the tonnes of corn, wheat and oils it sources from Ukraine’s breadbasket, and global agriculture will have to turn elsewhere for its fertilisers.
Today’s supply chain issues don’t come out of the blue. Semiconductor manufacturers begun diversifying their sources of neon after Russia annexed Crimea in 2014, and one of the biggest corporate lessons from the pandemic when borders suddenly shut was around diversifying suppliers, building stock buffers and preparation. However, war in Ukraine has accelerated supply chain risks beyond procurement and logistics divisions, leaving treasury teams playing a pivotal role shoring up supply chain finance programmes by ensuring privileged buyer status, and building capacity as nearshoring and onshoring trends gather steam. “For most companies, the direct impact of the war on their business is limited,” says Emmanuel Bulle, Head of EMEA Research at Fitch which estimates only ten to 15 of the 200-odd EMEA corporate issuers it rates have over 25% direct exposure to Russia via sales and EBITDA. “Companies’ main exposure is indirectly via their supply chains.”
Supply chain transparency that extends down the chain to reveal companies’ Tier Two and Tier Three suppliers has become key to shoring up production and safeguarding against a hit on revenues. For instance, Ukraine-based suppliers to European auto manufacturers may still be able to service their main clients but their own smaller suppliers may no longer be in business. Visibility is essential to ensure OEMs can accurately assess their requirement for buffers and leeway and understand if supply chain issues will just manifest as a slowdown in production – or require more drastic action like moving production. Visibility of suppliers’ payment terms allows treasury teams to see the time lapse between ordering, receiving and payment of those components and gives a window into the financial strength and liquidity of suppliers.
Visibility also plays into another emerging theme: buyer support. With operational payables and receivables data on-hand, companies can delve deeper into their supply chains and wider ecosystems to firm up and stabilise the weakest points with financial support, aware that suppliers favour buyers who are able to provide better terms. Buyers can change payment terms, particularly prepayment, or pay suppliers early. Elsewhere, visibility allows treasury to see if invoices have been approved, and act quickly to pay suppliers rather than let approved invoices sit unpaid in their treasury system.
In another trend, some treasury teams are using surplus liquidity to provide early payments in support of stressed supply chains, notes Alexander Mutter, Managing Director, Head of Enterprises EMEA at Taulia, where research finds supplier demand for early payment has trebled in recent years as suppliers request support accessing liquidity. “Early payments are a way companies can focus their liquidity. Automated processes mean all approved invoices get paid by the buyer earlier and straight through. Or companies can choose to have invoices funded by selecting individual invoices on a fully digitised and integrated working capital platform which can be funded by banks, or the buyers, to bridge the gap in the chain,” he says. Having to temporarily adjust payment terms with suppliers was among the top three most effective supply chain finance optimisation strategies, according to a recent quarterly Economist Impact Report.
It is an analysis endorsed by Fitch, where Bulle also notes that large buyers have grown increasingly wary of the risk of smaller, unrated suppliers short on working capital and unable to refinance, impacting their supply chain. Buyers now see that it can be in their interest to come to the rescue with better payment terms and financial support off the back of their high credit rating, he says. “Large companies’ ability and need to support their suppliers is increasingly apparent in our analysis and reviews. We have seen a few large corporates rolling out more supply chain finance programmes in a reflection of the need to support suppliers. If a supplier comes under financial stress, buyers are offering better financing terms.”
Technology is key to visibility and treasury’s ability to support suppliers. It involves centralising accounts payable and receivable (AP and AR) to eliminate duplication across separate locations. Centralisation also improves the business’s negotiating position across branches and reduces errors and the risk of missed payments. Effective supply chain management requires overarching dashboards and sweeping business network solutions, adds Mutter. He advises storing information on data and flows alongside raw material pricing and currency and interest rate costs, enabling treasury to manage cash flows and risk together. “Treasury can link their entire network or ecosystem via one platform,” he says. “Many treasurers or solution providers only think on a contractual basis or counterparty basis, but treasury should adopt a network approach, mindful of relevant entities on their purchase and sales side and build connectivity to operate as needed.”
Elsewhere, treasury teams are using electronic invoicing to facilitate faster finance requests. This solution reduces the time to generate bills, deliver statements and invoices, and resolves any disputes, thereby improving efficiency. International logistics group DHL recently used the e-invoicing services of Tradeshift, a cloudbased digital B2B network and supply-chain management platform to onboard 50% of its vendors within eight months, enabling them to process 21,000 e-invoices per month, up from 12,000-15,000.