While people around the world may be beginning to look beyond the pandemic, supply chains continue to face major disruption. Shortages of products including semiconductors and shipping containers have threatened production and lengthened transit times. At the same time, severe port congestion in the US, the global energy crisis and the UK’s HGV driver shortage have all challenged supply chains in a variety of ways, from soaring costs to late deliveries.
The impact of these issues has been felt around the world. “Globalisation means that supply chains are incredibly complex,” says Alexander Mutter, Managing Director, Head of Enterprise EMEA at Taulia. “An issue taking place in one country can have significant reverberations in other countries.”
With China accounting for almost 15% of global exports in 2020, Mutter notes that an increase in demand from China is contributing to fluctuations in the availability and pricing of certain resources. “The demand we see is not just in semiconductors, but also in raw materials including wood – in fact, the price of wood has doubled in the last couple of months, while delivery times have increased from four weeks to six to eight months,” he notes.
Supply chain goals
According to Mutter, these disruptions have sharpened the focus of the C-level on finding new ways of protecting businesses from supply chain disruption. “The COVID-19 pandemic, in particular, showed how fragile global trade and supply chains are,” he says. “And of course, if you have experienced the risk, you have to find a solution.”
In this climate, Mutter says CFOs are focusing on three key considerations:
ESG – many companies are focusing on driving improvements across some of the UN’s 17 Sustainable Development Goals (SDGs), and are setting clear targets that they are looking to achieve over a given timeframe. Against this backdrop, a lot of companies are also looking more closely at supplier relationship management. Whereas previously companies may have focused on profitability and negotiating attractive pricing, today the focus is more on partnership and achieving joint objectives with suppliers.
Digitisation – data visibility is another focus, and in practice a lot of interruptions occur due to a lack of automation. Many companies lack a homogeneous infrastructure and may be using multiple ERP instances, resulting in inefficiencies. The solution is to achieve the end-to-end optimisation of digital processes, from e-invoicing to the integration of ERP systems, and to build overarching solutions that provide enhanced data visibility.
Working capital/sourcing – while companies may be able to improve their working capital by extending the payment terms offered to suppliers, Mutter notes that those payment terms “really should be fair – I think there’s a rethinking in some businesses as to what fair payment terms are.” And where sourcing is concerned, Mutter says companies are increasingly looking at pre-payments to ensure they can source the raw materials they need.
At the same time, efforts to optimise working capital are being driven not only by the need to stabilise supply chains, but also by a focus on business growth as companies navigate a return to more normal economic patterns. As well as seeking to grow organically, many companies are focusing on inorganic growth opportunities in today’s buoyant M&A market.
“There’s always some degree of consolidation going on, but post-pandemic we are seeing more than usual,” says Mutter. “And corporates want to be prepared so that they can act if they see an opportunity.” He adds that this often means financing deals using the company’s liquidity – which again is driving a renewed focus on working capital.
Supply chain solutions
For companies looking to address the challenges brought by globalisation and changing customer demand, technology has an increasingly important role to play in making supply chains more flexible and efficient. While technology investment can often slow down in uncertain economic environments, this has not been the case during the pandemic: in late 2020, a survey of 200 senior-level supply chain executives by Ernst & Young found that 92% did not halt their technology investments.
And in today’s market, there is a wide range of supply chain solutions available to help companies solve a wide range of challenges. Taulia, for example, is a holistic working capital platform, with solutions including accounts payable: dynamic discounting and supply chain finance, accounts receivable and inventory management solutions.
Different industries may have different strategies when it comes to adopting supply chain solutions. “Particularly in the retail sector, we see ESG as a top priority,” says Mutter. “On the automotive side, we see a lot of collaboration with suppliers: OEMs are looking for supplier health rescue programmes to really understand how they can help suppliers if needed.”
Flexibility, liquidity, sustainability
Whatever the core goals, says Mutter, many companies are focusing on building a technology infrastructure that enables them to have a well-organised and documented method of paying suppliers early. Often companies choose to offer their suppliers flexible terms, meaning that suppliers can either receive payment on the agreed value date, or can take the option to receive early payment on pre-agreed terms. “Even industries that have historically not been keen to look into early payment programmes are now starting to investigate what this means for them,” Mutter adds.
During the pandemic, Mutter argues that supply chain finance has been proven to be a critical tool for supporting global ecosystems, and has played a key role in injecting liquidity into supply chains when needed. By incentivising suppliers for good behaviour, it can also help companies achieve their ESG objectives: Mutter cites the example of Taulia’s client Bridgestone, which decided to offer suppliers preferential early payment financing rates based on the ESG rating of individual suppliers. “The better the rating, the greater the discount – so suppliers have the incentive to work on an enhanced sustainability rating,” he explains.
Looking further ahead, Mutter notes that inner city logistics is likely to be a greater area of focus. He cites Switzerland’s Cargo sous terrain (CST) project which aims to connect production and logistics sites with urban centres using electric autonomous vehicles travelling on an underground network.
“I think this is an opportunity to think bigger – how can we connect the last mile going forward? And how can we build more stable logistics in the suburbs?” says Mutter. “A lot of thinking, and a lot of investment, is going in this direction, and digitisation will play an important role in automating this.” Consequently, he says, Taulia is looking closely at this type of innovative project, “and at how we can intelligently customise our financing to these changed supply chains.”
Taulia is a leading fintech provider of working capital management solutions and helps companies access liquidity tied up in their payables, receivables and inventory.
For more information, please visit Taulia.com.