As the current crisis evolves, supply chains with limited resources, slowing sales, and shrinking margins will, unfortunately, work together to put even greater pressure on profits and companies’ cash flow.
In past years companies have become accustomed to projecting themselves optimistically into the future… (at least for some).
Now, with the crisis and especially the uncertainty that reigns, we will need a strong dose of realism to find how to free up liquidity. Businesses will need all the forecasting capabilities; available to test their capital needs weekly at best or monthly basis at worst.
What should we focus on?
In this crisis period, supply chain managers need to focus on freeing up stuck liquidity in their value chain.
Reducing inventories of finished products; with thoughtful and ambitious objectives supported by solid governance can lead to substantial savings.
Likewise, improving logistics, such as more competent fleet management, allows businesses to defer significant capital costs without impacting customer service. Pressurizing individual vendor purchase orders and minimizing or eliminating purchases of non-essential supplies generate immediate cash flow.
Supply Chain managers will also have to analyze the root causes of purchases by adapting inventory and production management models.
It is necessary to favor models based on demand.
These Demand Driven models promote cash generation and increase the speed of cash flow in the company.
We can see here the bridge between the supply chain functions and the financial functions. We can also imagine how to financialize S&OP can help make well-balanced decisions and allow cash flow to be better managed.
Let’s try to link Supply chain managers closer to the finance teams, and give them tools and processes adapted to the new decisions.