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Building Resilience And Agility Into Your Supply Chains

Co-authored by John Molanda, Head of Transaction Banking Sales (Business Banking), Absa CIB and Kuben Pillay, Head: Trade and Working Capital Sales Commercial, Pan Africa Transactional Banking at Absa CIB

How resilient is your supply-chain? This is a question many of our credit committees are asking when they review funding applications from clients, and this should be front of mind for many entrepreneurs with expansion plans in 2023. 

A Gartner survey of more than 1,300 supply chain professionals found that 87% of respondents plan investments in supply chain resiliency within the next two years as global events have rocked businesses. 

It was early 2020 as the world began to “lockdown” in response to the COVID-19 pandemic and while these restrictions were eased as time passed, China continued to lockdown big parts of their economy well into 2022 at the same time as events in Russia and Ukraine were escalating. 

Closer to home, South Africa saw the riots and floods in KZN, as well as the declaration of force majeure by Transnet expose vulnerabilities in global supply chains. Businesses who did not have contingency plans in place began to face operational challenges. 

Apart from disrupting production processes and causing product shortages, the ongoing supply chain bottlenecks have pushed up global inflation. This led to worldwide shortages wherein whoever had enough stock at the time of the crisis was most competitive in the market. Not only could these organisations satisfy client demands, but they could also sell products at a premium.

Given the above it becomes important to know how to build resilient supply chains.

Gartner defines resilience as the ability to adapt to structural changes by modifying supply chain strategies, products and technologies, and agility as the ability to sense and respond to unanticipated changes in demand or supply quickly and reliably, without sacrificing cost or quality.

We have identified a few key practical areas for our clients to focus on: 

Suppliers are everything 

The first place to look is around diversifying your supplier base. Relying on a single supplier or a single geographic region exposes you to concentration risk in a very uncertain world. When engaging new suppliers it is advisable to seek banking solutions that can mitigate performance risk, with the new suppliers.

In March 2022, Reuters analysts estimated that the war in Ukraine had cut off half of the world’s supply of neon. “Some 45% to 54% of the world’s semiconductor-grade neon, critical for the lasers used to make chips, comes from two Ukrainian companies,” the news agency reported.

Both firms have closed their operations, casting a cloud over the worldwide output of chips, already in short supply after the coronavirus pandemic drove up the demand for cell phones, laptops, and later, cars, forcing some firms to scale back production.

When the success of more than 50% of your business relies on one supplier, the effects of supply chain disruption will be felt more severely. Make sure to diversify your relationships with suppliers – no company wants to have to close because of a dependency on just one supplier or part of the world.

You can further de-risk your supply chain by investing in your supplier relationships. When disruptions occur, suppliers are more likely to work with companies they have strong relationships with.

“Just-in-Case” is the new “Just-in-Time” 

Another point of consideration is around your business processes. One of the big trends in global manufacturing at the moment is the shift from “just-in-time” manufacturing, which is focused on hyper-efficiency, to more of a “just-in-case” strategy which allows you to build in breathing room for when disruptions occur. 

By reviewing your processes and interrogating your supply-chain, it gives you an opportunity to uncover hidden risks by forcing you to analyse the supply chain as a whole. Do you understand the risks should a particular transport hub be interrupted? Consider South Africa’s ports, what would happen should one of your distributors be shut down by industrial action? 

While this process is expensive in the near-term, it provides clearer visibility of more expensive downstream risks. 

We at Absa believe that it is imperative that any country which is serious about growing its entrepreneurship ecosystem must take a hard look at its Trade Finance and Working Capital ecosystem. The right solution can be a massive competitive advantage and unlock value for all role players. We look forward to working with our clients across the continent to navigate these challenging times.