19 Apr Managing the supply chain risk in Europe – supply chain finance should be taken more seriously
Critical components in your supply chain are at risk – and you may not even know it. There are numerous points of failure in today’s complex supply chains and because of the difficulty that upstream suppliers have funding their business from day to day, the risk of a damaging and expensive failure is increasing. And it gets worse. Efforts to cut costs have resulted in leaner, riskier supply chains held together by a network small suppliers. If the risk of financial failure isn’t mitigated it could have disastrous consequences – which is why businesses – especially in Europe – should begin to take supply chain finance more seriously.
I only single out Europe because of the marked contrast with the USA. In North America, big businesses are enthusiastically embracing techniques like dynamic discounting. In the first 3 months of 2013, Taulia had their best quarter so far and after a spectacular 2012 are now expecting to grow revenues by 400%. Their success is not exclusively in North America but it is heavily biased that way. Jens Jacobsen from Ariba, speaking at the Økonomiforum conference on e-invoicing and supply chain finance in Copenhagen this week claimed that their dynamic discount service is now their top selling offering in the US. Yet in Europe, business seems hesitant and this is leaving supply chains exposed to serious risk.
Speaking at the same conference, Esther Liskamp, Vice President Commercial Supply Chain Project, Philips Lightning made the point very well. 96% of logistics firms across Europe, she explained, own fewer than 8 trucks. What does this mean? It means that the goods being shipped all across Europe, whether that’s components and raw materials or finished goods are being shipped by small businesses – and in the current economic climate small means vulnerable. It’s a highly competitive industry and when one of these small businesses fails, it doesn’t make the front page of the FT. When dozens of them fail – no-one notices. Yet these businesses are critical to keep industry running efficiently.
There are many reasons why companies fail. They don’t secure enough orders, they’re mismanaged or the business model doesn’t keep up with a changing world. But increasingly, small business are failing because they run out of cash. They can’t secure lending to support their working capital requirements and if they can, it’s expensive. Quite apart from the compelling reasons to exploit supply chain finance as a means of securing a better return on cash, big buying organizations need to understand it’s power in helping to mitigate the increasingly serious risk of supply chain disruption resulting from a liquidity constrained economy.
Pete Loughlin can be found on twitter @peteloughlin