Three ways to adapt to shifting supply chains
The continued disruption to global supply chains triggered by Covid-19 is heralding a new approach for how many companies in Asia Pacific buy, distribute, sell and manage their products and services.
They have no choice. Exacerbated by the uneven economic path of recovery from Covid-19, geopolitical tensions and the desire for more efficient and cost-effective alternatives, companies in the region have to adapt to the multiple challenges abruptly imposed on them. Among their biggest concerns have been logistical constraints, unexpected fluctuations in demand, and restrictive measures in terms of labour and supply, according to a recent survey by Asialink Business, supported by Toll Group .
This has had a notable knock-on effect for corporate treasurers. “They have realised they need a ‘Plan B’ for all their treasury-related activities that were previously the norm,” said Hari Janakiraman, head of industry and innovation, transaction banking, at ANZ.
This demands three key changes to their processes, strategies and systems to enable them to adapt to their new reality:
- Finding alternative sources of procurement
- Rethinking supply chain financing options
- Implementing new technologies
New sources of procurement
To build more resilient supply chains, corporates are moving towards increased diversification in sourcing and distribution while also working on ways to enhance their forecasting capabilities.
In perhaps the most notable example, the reliance on China within global supply chains has come under the spotlight.
In line with this, there has been a clear shift away from ‘just-in-time’ inventory management systems.
“The need for a new strategy that provides a reliable alternative source of procurement is more acute than ever before,” explained Janakiraman.
This has led many companies to take a two-fold approach: diversifying away from China and bringing operations onshore, or back home.
“It is not about unwinding processes and systems that have evolved over recent years and decades, but rather building an alternative source of procurement in a way that helps to traverse the challenges of Covid-19 and geopolitical tensions,” added Janakiraman.
Yet this is easier said than done. Companies must also ensure there is the capability in these new manufacturing hubs to produce the required products at a realistic cost – or at least maintain sufficiently high levels of inventory.
New approaches to financing
These new approaches lead treasurers to their next challenge: re-thinking how they finance supply chains. Ultimately, they don’t want to be caught off-guard.
“This has prompted corporates to buffer up their lines of credit, a pattern we saw through 2020 across various industries,” said Janakiraman.
For example, they need to tackle subsequent issues such as longer inventory periods that impact working capital. Further, customers want payments to be quicker and smoother, so financing solutions need to be customised.
A potential option that some corporates are now pursuing is regional procurement and invoicing centres.
These have played a pivotal role in helping to design more of a future-proof treasury function, supported in turn by efforts via industry bodies and regulatory-led incentives to establish such hubs.
Corporates are also getting increasingly creative. “Covid has shown us that different treasury functions can be in different locations without any negative impact on efficiencies,” explained Janakiraman. “Locations can be chosen due to business reasons to help corporates be better prepared for future strategic needs.”
In line with the increasing urgency to better predict, plan for and mitigate supply chain disruptions, corporate treasuries have also accelerated their use of digital and technology tools.
“From automation, Internet of Things, cloud computing and artificial intelligence to advanced data analytics, new technologies are essential in enabling smarter and more resilient global supply chains,” said Janakiraman.
Their role is multi-fold – simplifying communications, improving logistics management, boosting transparency, improving cashflow forecasting, lowering payment costs and pre-empting potential vulnerabilities.
In short, new technologies offer a more efficient, scalable and practical way to manage risk and ensure more resiliency within corporate treasuries. They also enable transactions in real time, along with the aggregation and analysis of data to provide more meaningful insights.
Yet when investing in new technologies, treasurers need to take a more centralised, top-down approach to decision-making. This is essential to integrate blockchain or application programming interfaces, for instance, within legacy systems or platforms without sacrificing efficiency or security.
The goal is to create tech-savvy, well-informed treasury function that contribute to strategic business decisions.
Setting new supply chain precedents
Blending different strategies to deal with new supply chain realities is likely to be a permanent approach of corporate treasurers across Asia Pacific.
As economies and bounce back and the volume of cross-border trade returns to pre-pandemic levels, the role of new technologies, procurement flexibility and nimble financing options are here to stay.
Further, as customer requirements evolve, lenders are increasingly engaging in a number of initiatives to drive, facilitate and foster a nimbler global supply chain. For example, said Janakiraman, ANZ is participating in several industry alliances aimed at raising standards through the use of technology in working capital and supply chain management.
“Treasurers have become instrumental in helping corporates be more innovative, adaptable and competitive,” said Janakiraman. “This can help influence the business from a more holistic perspective, beyond purely the finance function.”
The following ANZ executives also contributed to this article:
- James Brown, head of market management
- Philippa Campbell, head of transaction banking - Australia and Papua New Guinea
- Adesh Sarup, head of transaction banking – Greater China and North Asia
- Vijay Shankar, head of transaction banking - Asean, India & Regional Sales