@ Supply Chain Management


Are you ready for the Supply Chain shock?

My apologies for the dip in blogging frequency but I was delightfully detained by the birth of my daughter – Mikayla Sara Abraham last Monday. What an interesting world she inherits in but a week’s time?

If you’re glued to the Dow/Nasdaq/S&P 500, let me ask you whether you’re equally glued to your supply chain cockpit i.e. if you have one? Regardless, if there is going to be a Supply Chain shock that is a consequence of tightened credit requirements, what is your plan, your firm’s plan for dealing with the fallout? Since offshoring and outsourcing have created a manufacturing base overseas, the impact of tightening credit requirements will not only be felt stateside but at all points along that financial supply chain.

If there is a shock that has been building up in your supply chain – for example, a supplier that might be facing a hard time raising money for his/her continuing operations for whatever reason – then you can be sure that this shock will be transmitted into you material flow supply chain at some point in the future. What if a supplier just closed shop because he couldn’t pay his payroll any longer and they were a single source supplier? Time to get busy finding another source before that become a real problem, you’d think? But perhaps your firm is the problem for your suppliers and your own delays in making good on payments to suppliers squeezes their cash flow sending them into a downward spiral – internal improvements would need to be made after assessing which of your suppliers might benefit the most in this regard. In some cases, your firm might even need to step in as a guarantor in the relationship between a supplier and the credit facility – be it local or global. This is a time for building close relationships with every facet of your supply chain that has the potential to cause serious disruptions within.

Also, since the transportation lead time is for most firms (I mean those that have gone the outsourcing route) a fixed quantity right now – given that one has to factor the average shipping, drayage etc on average and one cannot really change this without forking out more in transportation costs and given that one has to hold the larger inventory over this additional lead time, any improvements to driving down the magnitude of this inventory as well as improving inventory turns should free up working capital for continuing operations.

While oil is the physical commodity that greases the global supply chain and you might not have liked the era of soaring oil prices and how it affected your margins if you were not able to pass on the costs to consumers, credit is the real handshake that enables the global supply chain – the current credit squeeze makes the handshaking that goes on everyday (that needs to continue to go on into the future) a little less forthcoming. Anything that you can do to free up working capital in your firm such as speeding up material to cash conversion can only help but more importantly planning for it now (or hopefully, some months ago) will give you an edge no matter which way this ill-wind blows.

Update: If you wanted a recent news article that describes the relationship between credit markets and continuing business operations – Banks in miser mode send borrowing rates soaring.

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Category: Strategy, Supply Chain Management


One Response

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September 2008