Trade & Supply Chain

Supply chains in crisis: treasury’s response

Published: May 2022

The semiconductor and auto industries encapsulate the challenges companies face in their supply chains. The ability of companies to access vital components that go into making their products was tested during Covid and has now grown even more complicated because of Russia’s invasion of Ukraine. Expect buyers to do more to support their suppliers, more nearshoring and the emergence of corporate winners and losers.

Cargo ship leaving dock at sunrise

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.”

Technological solution

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.

Early payments are a way companies can focus their liquidity.

Alexander Mutter, Managing Director, Head of Enterprises EMEA, Taulia


In another trend, the argument for nearshoring is becoming more compelling for treasury. Many industries already reap the benefits of Tier One suppliers, building factories next door to their biggest OEM customer, explains Dominic Tribe, Director, at supply chain consultancy Vendigital. “In the car industry, manufactures build, say, seats on the same day which then go on a conveyer belt into the manufacturing facility,” he describes. A jump in the cost of freight plus tariffs and duty, means that manufacturing in China is not necessarily a cheaper option, particularly for companies paying to ship bulky components. Although sourcing certain parts of a supply chain from Asia will remain cheaper – even with rising container shipment costs and tariffs – treasury and procurement teams are increasingly looking at their supply chains on a case-by-case basis, exploring the financial impact of onshoring or nearshoring, says Tribe.

Still, onshoring holds a range of treasury challenges. The costs like labour and overheads may increase if the company moves production to a different country. It will mean treasury teams will need to decide whether they pay their suppliers more going forward, pass the costs onto their customers or if it’s preferable to swallow it in their margin.

Nor will it ever be possible to re-shore all production because some components like semiconductors are only manufactured in specific countries – the UK doesn’t have any semiconductor manufacturing capability. Other manufacturing processes rely on a highly skilled labour force that is more difficult to relocate than capital equipment. Wiring harnesses are a good example, says Tribe. “They are complex to manufacture, requiring skilled manual labour and when being fitted to vehicles, the weight and size makes them difficult to install and are one of the first components to go into a car once the chassis is built. The process can’t be automated and involves skilled labour.”

Experts also note that the capital cost of moving production can run into millions, risks duplication and involves unravelling complex ownership rights over assets. Moving production assets requires an asset register to provide clarity on whether the supplier or end customer owns the manufacturing equipment. For example, in the auto sector bespoke tools and processes used by suppliers in the manufacturing process are typically owned by the car companies. “If companies decide to move their supply chains, treasury will need a clear distinction between who owns what asset,” says Tribe.

Winners and losers

It is becoming apparent that the evolving supply chain crisis and fundamental challenge to globalisation wrought by Covid and exacerbated for some corporates by war in Ukraine will create winners and losers. For instance, shortages in high-grade nickel sourced from Ukraine and used in electric vehicle batteries is likely to disrupt and lengthen auto groups’ road maps to electrification, providing an opportunity for new groups to move into the market. “EV start-up companies like Volta and Arrival could steal market share in the short-run,” predicts Tribe. He also believes electric car manufacturers’ ability to access semiconductors (each vehicle requires around 3,500 semiconductors and missing just one can thwart the whole assembly) will also create winners and losers. “Semiconductors are not like a screw you can replace,” he says. “They are made to specific auto standards and can have controlling safety features – in most cases you can’t just swap A with B.”

Such is the level of crisis in the supply chain it goes well beyond prices and volatility. Some experts predict it will ultimately force companies to decide whether they can continue to secure the physical goods that go into their manufacturing process or not. “Those prepared best, will cope better,” says Taulia’s Mutter. “The longer the war in Ukraine goes on the harder the physical supply chain will be hit.” Positively, companies are stronger now thanks to cash buffers, balance sheet strength and lessons learnt from the pandemic. The enduring pressure to integrate ESG across supply chains in response to forthcoming legislation, also means that treasury teams are better prepared for the future than they were a few short years ago.

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