August 24, 2020
For years, digitization has been considered an optional strategy by many companies, thus resulting in static and disconnected buyer-supplier collaboration points across supply chains. For many organizations, processes remain highly manual across fragmented systems, resulting in inefficient, error prone workflows. Reliance upon Excel®, email, and phone calls remain common across a staggeringly significant amount of business, thereby resulting in delays, non-compliance, and friction between buyer and seller. The time and resources lost synchronizing simple concepts like purchase order confirmations, negotiation, documentary compliance, and invoice approvals cripples flexibility and agility, all while locking up millions, if not billions in working capital.
Anywhere paper or manual processes exist means a lack of visibility follows, leaving missed opportunities to harness real-time supply chain data that optimizes decisions and mitigate risks.
Digitalization is now essential to competing and eliminating supplier friction. Questions around mitigating risk are answered by leveraging transactional history across buyer-supplier relationships. With a digitized network as the foundation, supply chain data delivers a more robust risk assessment for all participants to benefit from:
- Real-time intercompany workflow and collaboration
- Sharing forecasts and confirming capacity and order details with suppliers
- Determining the optimal milestone for capital injection in the fulfillment process to mitigate supply risk
- Identifying alternate sources of supply based on performance trends
- Orchestrating inventory moves from origin to final destination based on predictive and real-time signals
Creating access to capital
Unexpected events, risk, and uncertainty create knee-jerk reactions by major retailers and manufacturers. This results in a contentious situation where suppliers face liquidity shortages resulting from dried up credit, delayed payments, or order cancellations.
Suppliers struggling to access capital needed to keep the lights on or purchase materials may lack funding options, while others face high borrowing costs. Expensive capital costs end up baked into the cost of goods sold, eating away at margins. A cash-strapped supplier puts assurance of supply and customer satisfaction at risk.
Teaming up with suppliers can help tackle financial risk, while assuring a healthy supply chain. In a manual world, invoices can take weeks to process and approve. But when purchase orders, invoices, and settlement processes are digitized, invoices can be auto approved daily. If payment terms are 30 days from invoice approval, an automated process creates a 29-day window of opportunity for suppliers to obtain supply chain financing.
When automated, suppliers are paid on time and possess the improved cash flow visibility to plan operations accordingly. Likewise, financiers possess visibility into the same digital ecosystem, allowing them to inject capital at different stages and risk profiles within a transaction. During an economic upturn, when anchor buyers have excess cash, they can take advantage of a digitized environment to fund their own suppliers early in exchange for a discount and receive a greater return on cash versus parking cash in a typical money market fund.
Addressing financial risk plays into—and helps mitigate—supplier criticality risk. As global trade grows increasingly complex, partnering with suppliers on programs such as digitalized supply chain finance is one of the few consistent and reliable wins that pays dividends for both buyers and suppliers.
To learn more about building continuity with supply chain digitization, check out the complete best practice guide.