According to a study, disruption to supply chains shows the importance of devising a working capital and trade finance management strategy to achieve resilience and remain operational, especially during unprecedented times. With risks tightening their grip, it is only a matter of time until supply chains experience the consequences of remaining unprepared. Despite the risks involved, a Hubs survey revealed that approximately 30% of respondents have not developed strategies to establish a resilient supply chain.
How To Identify a Resilient Supply Chain
Unless there is tangible evidence backed by facts and figures, indicating a supply chain's resilience, efforts in mitigating risks will yield vague outcomes. Here are some key metrics to measuring supply chain resilience:
The Time It Took to Survive
This metric refers to the ability of a supply chain to sustain operations despite unexpected events. If supply chains have shorter survival rate, it means they are vulnerable to risks. On the other hand, if a supply chain has longer time to survive, it is perceived to be a resilient supply chain. Identifying a supply chain's time to survive provides ample time for supply chains to prepare for disruptions, ensuring continuity in their day-to-day operations.
The Time Required to Recover
This metric refers to the time it takes for a supply chain to go back to its normal operations after experiencing disruptions. A shorter recovery period prevents financial losses and keeps the supply chain's reputation intact. A longer recovery period, however, indicates financial struggles that can create a ripple effect on various aspects of supply chain management.
The Time Spent to Thrive
Resilience is not only about survival as it also measures how supply chains uphold their competitive edge. For supply chains to thrive, they need to prepare preventive trading finance measures to ensure readiness for future disruptions.
6 Trade Finance Challenges
- Credit Risk: Credit risk is one of the most significant challenges in trade financing. It is a risk because when a buyer fails to make a payment for the goods that have been shipped, exporters will experience financial loss. Credit assessment will be necessary for mitigating credit risk.
- Documentation Complexity: When fulfilling trade finance transactions, there will be intricate processes that need to be followed to prevent payment disputes and delays. However, the long list of requirements that need to be complied results in lengthy trade finance transaction process. It is essential to check if documentation is correct, compliant, and accurate to prevent these issues.
- Regulatory Compliance: Being compliant with international trade regulations is a major challenge that supply chains face as it needs regular monitoring and adaptation. These regulations include export controls, customs laws, and anti-money laundering requirements. Not complying with these requirements can result in legal penalties, reputational damage, and hefty fines.
- Currency Fluctuations: Exchange rates can also be volatile causing cross-border payments to fluctuate. These fluctuations can affect profit margins, causing cost unpredictability. Managing currency risk by developing strategies can protect supply chains from adverse currency movements.
- Fraud Risk: Fraud risk is another persistent challenge surrounding trade finance. Fraudulent activities can range from misrepresentation of goods to forgery of documents. Stringent verification processes to maintain transparency can mitigate fraud risk.
- Supply Chain Disruptions: Whether logistical issues, pandemics or natural disasters, disruptions can cause delays and increase costs. One example of the importance of resilience is during the global pandemic as it highlighted the vulnerability of trade finance to such an event. Having a resilient supply chain not only diversify supplier base but also provide contingency plans to manage future risks.
Advantages of a Resilient Supply Chain
Cost Efficiency
Developing a resilient supply chain might require substantial investment, but the benefits outweigh the cost in the long run. Resilient supply chains provide numerous benefits as it minimises the financial impact of disruption, reduces inefficiencies and streamlines processes. Having cost-saving measures in place can improve operational efficiency and address potential risks.
Shorter Lead Times
Another advantage of a resilient supply chain is that it optimises processes for quicker turnaround times. Shorter lead times result in customer satisfaction and quicker response to changes.
Improved Agility
Challenges are inevitable but resilience ensures supply chains can navigate these challenges, minimising disruptions and gaining a competitive advantage. With an agile supply chain, it will be easier to readjust resources and rethink processes according to trade finance companies’ demands and dynamics.
Minimised Risks
Unexpected events will test a supply chain's preparedness for disruption. Resilience anticipates these finances for trade challenges through strategic diversification. This approach will enhance risk distribution and ensure continuity.
Essential Steps in Building a Resilient Supply Chain
1. Strategic Planning
Planning is a critical step in building resiliency. This step requires gathering past results, data and tools to evaluate the needs of a supply chain. Having accurate data provides correct projection of logistics requirements, technology, and inventory. Getting a view of the overall standing of a supply chain helps anticipate challenges and minimise disruptions.
2. Optimising Inventory Strategies
Managing strategic inventory positioning and lead times ensures unexpected demands are met. Knowing the dynamics of a resilient supply chain helps deliver goods when they are needed rather than when they are predicted to be needed.
3. Standardising Processes
Knowing how to standardise vital processes in a supply chain reallocates resources in areas where they are most needed. Standardisation increases quality, uniformity and safety while providing seamless integration and optimised. operations.
4. Optimising Sourcing
Multisourcing involves coordinating with multiple manufacturers and service providers to ensure demands are successfully met. This approach reduces reliance on one supplier and provides backups if one strategy fails.While choosing your resources is crucial, having reliable network of suppliers provides additional solutions for mitigating finance trading risks.
5. Investing in Technology
With recent developments in supply chain technology, building resilience is easier in terms of managing complex operations. Centralised systems and trade finance platforms streamlining workflows and data, supply chains can track performance and identify areas for improvement. Utilising technology to improve the overall efficiency of supply chain keeps process smooth and simple.
Taking The Next Steps
Supply chains can face significant challenges that impact operations. Building resilience is crucial to mitigating these risks. Start by simulating potential disruptions and implementing strategies.
POINTRADE offers comprehensive trade finance solutions to prepare your supply chain for future challenges. Partner with POINTRADE to ensure your supply chain is robust and adaptable. Contact POINTRADE today to learn how we can help you build a resilient supply chain.