In typical circumstances, when things are operating smoothly and supplies are arriving on time, managing working capital is a direct matter. It is important for businesses to be prepared in case disruption strikes. However, cashflow gaps can appear rapidly, leading to financial struggles.
Supply issues are prominent as ever
From car makers toiling with semiconductor shortages to fast food chains being compelled to take milkshakes off the menu, supply issues have been extremely prominent in the headlines recently. Further to the repercussion of the pandemic and the deep-rooting impact of the Suez Canal blockage, driver shortages in the transport and logistics sector have been complicated by Brexit-related business immigration challenges. With stockpiles decaying, operational disruption is expected to get worse for many businesses before it gets better.
Previously, many businesses held large volumes of goods in stock, now the majority operate a leaner, just-in-time supply model. Subsequently, when supplies of critical goods are disrupted, owner managers may find themselves unable to maintain confidence around sales volumes and see their cashflow vastly impacted.
prepare your supply chain with effective scenario planning
The first step to alleviating against the effect of limited supplies is for owner managers to fully understand the impact they could have. For example, if they’re not able to get a fundamental product or material, are they able to predict what effect this will have on the customer? They should also seek an alternative solution – for example, is the business able to modify its product base or put dual sourcing plans in place? If these alternatives are not possible, what finance options are available to close the cashflow gap resulting from any decline in sales?
It is key that effective scenario planning is applied, as this can also help owner managers to prepare for specific supply chain threats, such as shortages of different materials or associated price increases. Honest and open communication with customers, as soon as a challenge arises, is also crucial to build trust and maintain valuable long-term relationships.
If businesses fail to have significant cash reserves in place, the financial impact of supply shortages can rapidly spiral down the supply chain. However, there are steps that owner managers can take to prevent things getting out of hand. With sufficient scenario planning, clear conversations and an effective problem-solving approach, supply issues don’t always have to be the be-all and end-all.