Supply chain risk and Supply chain finance

Jorge Andres Garcia Castillo

Masters Candidate in Supply Chain Management en Zaragoza Logistics Center (ZLC)

As we know a main factor for competitiveness in a company supply chains is the lead
time of the pipeline, the less lead time the less inventory and vice versa, subsequently
changes in lead times carry impacts the customer satisfaction and finally a finance report
as the balance sheet to assess inventory levels and the income statement will exhibit the
revenue related to the improvements in the supply chain. However before taking hasty
decisions, supply chains department should ground financial reports that help to exhibit
where to focus, as we know statistically 20 per cent of brands accounts for the 80 per cent
sales, it would be rational to focus the solutions for this group.
Also important to consider in any supply chain new decisions would be the concept of
total cost analysis where it is known that a single change in the supply chain carry other
cost associate that must be foreseen, this allow us to take into account different assets and
accounts do not were directly related to the investment but that will have a raise, and it
makes paramount a supply chain-finance interaction to take final decisions.
Decisions that involved risk in supply chain and finance are taking daily. Starting from
selecting a faraway manufacturer instead of a close supplier, looking for reduction of
product cost, but sacrificing lead times, increasing inventory and cash to cash cycle times.
A new strategy localization that reduce the lead times, is an investment that raise
operational cost and fixed capital, this have a main impact in the income statement which
should be asses previously for supply chain-finance managers for devising marketing and
sales strategies that can consider this investment in order to not affect the gross profit.
The excess of production and bottlenecks cause for push production processes can
affect the agility and lead times of the company, decisions that increased the inventory
taken without a finance perspective can reduce working capital significantly, and it can
lead to managers reading finance reports to take decisions like reducing customer
payment terms for gaining working capital, which was not the cause of the problem.
Purchasing centralization from a supply chain finance view can carry in better discounts
and tax benefits, rather than purchasing in any division by their own. Since it cannot be
easily implemented for the culture of the company, it is required that a supply chain
finance guideline be set and explain for lower departments.
It must be said that a supply chain risk regarding as an investment for meeting supply
chain goals, as a new warehouse, an automation, a new localization must be considered
from a logistics and finance point of view, and always question like how the projection
of demand and total cost related to this new investment will compensate the initial
investment.