The pandemic. The Russia-Ukraine war. These were the things that caused expected disruptions to global supply chains, sending general consumers into massive buying sprees time and time again.
It’s unsettling to think that we may, once again, be just as unprepared for another supply-chain related calamity in the near future.
If you’ve been reading the news, we are nowhere near the end of this crisis. Experts believe there are another two major crises waiting for us not too far off in the future, thanks to the recent Chinese lockdowns (2021 - 2022).
Due to the disruption, there’s been new demands for supply chain financing.
Disruption to the Supply Chain and its Domino Effect
If you’re unfamiliar with the inner workings of the global supply chain, here’s a quick overview.
The chain of supply relies heavily on each other to provide a consistent flow of products and services; the end-game is to bring consumers what they need without disruption. A strong network is baked into the system that banks on a strong reliance on each others' steady association. It establishes a more manageable process of issuing and processing orders on demand.
Each component within the supply chain needs to be on time in providing everything from raw materials, services, finished goods so that it can move through the conveyor belt towards the end-users.
As wholesalers, distributors, manufacturers, and retailers struggled to find their footing again, there was a new demand for short-term credit facilities amongst the businesses. One of the most common requests was for supplier financing.
It is clear as day that any disruption, big or small, will cause panic buying and upheaval to the lives of end-users.
A disruption to the supply chain process means delay. There will be an upheaval of the process, and potentially causing unplanned disorderliness.
The Relationship Between Suppliers, Manufacturers, and Retailers
In order to ensure a smooth transition of materials, services and products from one stage to another, the supply chain process needs to be as fool-proof as possible. Any disruption can cause chaos.
Granted, nothing is 100%. However, contingency plans are always in place to deal with minor setbacks that don't upset the supply of goods to end-users.
Organisational structure differs from industry to industry, country to country. It is often based on the relationship and degree of collaboration between all parties involved.
Some structures are informal and based on unspoken rules while others prefer to ink relationships to create joint ventures or integrated supply chains. The latter arrangement is due to high dependency on each other.
The more permanent and formal the long-lasting relationship has been within the network, the more efficient the supply chain is because it minimises the risk of fluctuations and disruptions when unexpected incidents threaten its flow.
With formal relationships between the parties, they are able to customise their needs, consistency in requirement and quality, and minimise waste within the supply chain.
Supply Chain Integration and Digitization
Due to recent events, there’s been a shift towards integration and digitization. This is not to say that it is new because it’s not. Recent events simply accelerated the process.
The goal now is to be more hyper aware of potential disruptions. Authorities and companies have done their due diligence to forecast potential threats to the processes. Suppliers, manufacturers, distributors, and retailers now see a need to be more efficient to help companies overcome obstacles faster through an integrated supply chain system.
Supplier financing is often referred to as reverse factoring which leverages on the buyers’ stronger credit standing. The short-term credit allows buyers to lengthen their payment terms while providing suppliers with earlier payment. Depending on the facilities offered by the financial institutions, supply chain financing also encompasses distributor financing, and wholesaler financing.
When it comes to supply chain integration and operational efficiency, it is often the lead company that initiates the integration process. It takes shape in the form of a better control of the process and may include mergers and acquisitions.
Digitization is a big step, although not unpredictable, towards the future of smoothing out the supply chain network and its processes.
The process encompasses an effort to integrate the workflows and systems in a unified way using the latest technology. The goal is to eliminate silos, enhance responsiveness, and provide better transparency. For starters, companies may start looking into doing away with manual processes known to eat up manpower and man hours.
On a positive note, while integrating technology into the supply chain network process, there’s been reports of companies creating paperless systems that include an uptick in the usage of cloud-based systems.
Fast-tracking the digitization process with new initiatives are definitely in the works. Even traditionally-run manufacturers, distributors, wholesalers, and retailers have become more familiar with utilisation of tools within their organisation to oil the supply chain engine.
Why Are Companies Fast-Tracking Digitization of the Supply Chain Process?
Before the pandemic, the global supply chain WAS optimised. They were functioning efficiently, albeit, in a just-in-time manner. Throughout 2020 to this very day, the supply chain network has had to dial back and relook at its airtight strategy. Although it has been working perfectly over decades, if not more, it is ill-prepared for crises.
Unforeseen circumstances like closure of or delay at the ports, transportation disruption due to border closure, shortage of raw materials, uncertain delivery time, shortage of manpower, etc has turned the industry upside down.
For instance, manufacturers and distributors who used to pay $100,000 for shipments had to look at alternative ways to bring in the raw materials. After dealing with the delays, they raked up a bill of millions in dollars just to cover transportation costs.
You can read more about the biggest cost in the distribution industry here.
Conclusion
Developing a dependable, flexible, and long-lasting network and community is now critical to transformation. A contingency plan is needed to bolster potential disruptions.
Whether those within the supply chain network choose to start moving the goalpost one step at a time or cultivate a more efficient way to procure materials within a new platform, it remains to be seen.
You can start by using INFT as a part of your digital transformation process because no matter how you slice it, you’ve got to start somewhere.
Whenever something unexpected strikes, it is always good to have a some cashflow to bolster the impact. If so, INFT is here for you. We offer up to RM150,000 in business term loan whenever you need it. All you need to do is to call us at +6018-7928328 or email us at cs@inft.com.my and we will get back to you in no time.
At INFT, we make financing easier, faster, and more seamless.