Supply Chain Synergy

4 5 The resilience requirement If companies across Asia hoped that the post-pandemic world would mean easier times ahead, the first few months of 2023 are signaling otherwise. With inflation on the rise and global trade still vulnerable amid the aftereffects of Covid-19, business leaders are focusing more than ever on building resilience in supply chain financing. “Whether companies have one or two big suppliers in one country, or many suppliers across different geographies, they have to take extra care of their supply chains,” says Megha Chopra, Asia Pacific Head of Trade Sales and Client Management, Treasury and Trade Solutions, Citi. “If they don’t, these supply chains could become an acute area of risk.” Building resilience with supply chain finance But what exactly are companies’ greatest concerns over the coming months? And what strategies are they employing to make their supply chain financing resilient to further shocks? Challenges ahead Research by Citi in partnership with East & Partners showed that geopolitical concerns remain top of mind for almost one in four businesses in the region, as conflict in Ukraine and escalating tensions in the South China Sea take their toll. The fall-out from the supply chain disruption of the last three years continues to weigh heavily: the research identified that 17% of enterprises across Asia consider a supplier default as the single most pressing concern. Companies are also worried about ongoing supply chain disruption and logistics delays, with 14% citing this as their biggest concern. A relatively new challenge is rising costs. Across the region, only one in four companies are yet to face higher inventory costs, with those in Vietnam and India least affected. Resilience-driven solutions In response to spiking costs, companies are adopting a range of strategies to SUPPLY CHAIN SYNERGY Industries are feeling the strain of rising costs but financial products can help strengthen the supplier ecosystem the ones that are going to emerge as winners.” Pepco, a chain of discount shops with 115 strategic suppliers in Asia, has done just that. When Covid-19 hit, it decided to extend payment terms for its suppliers from a maximum of 15 days to 30 days, and then again to 60 days.  A year into the pandemic, supply chain costs—notably logistics and commodity costs—started to increase as the global economy recovered. Pepco wanted to help its suppliers, ensure supply chain resilience and minimize the impact on its own cost base. The company decided to extend payment terms further. Crucially, it wanted to use supply chain finance to reduce costs for its strategic suppliers because, as the terms got longer, the impact to suppliers grew too.  The supply chain finance solution allowed suppliers to be paid in 10 days, saving them significant effort and expense associated with factoring, and enabling them to offset increased commodity and other costs.  Citi’s Chopra explains that Pepco’s approach should serve as a model for others. In an inflationary environment with increasing interest rates, the differential between the cost of investment-grade and non-investment- grade finance is becoming significantly wider, putting pressure on smaller We’ve had to become much more proactive with our suppliers and really treat them as partners rather than simply providers.” Treasurer, US$1.8bn Indian Light Manufacturer build greater supply chain resilience. More than one-third of those surveyed said that they were increasing inventory buffers by switching from a “just-in-time” supply model to a “just-in-case” one. Greater supplier integration was a focus for 58% of respondents, who cited it as a way to face down the latest economic headwinds. “Given the impact from global events, corporates have been carefully re-evaluating their supply chain priorities” says Andrew Betts, Global Head of Trade Sales and Client Management, Treasury and Trade Solutions, Citi. Effective supply chain management is proving even more critical to optimum working capital flows and risk mitigation.“ “With all that is going on in the world, there needs to be a higher level of trust and integration with suppliers,” Chopra says. “Corporates that have managed to take their suppliers along with them are A stronger financial supply chain results in a more robust physical supply chain.” Andrew Betts Global Head of Trade Sales and Client Management, Treasury and Trade Solutions, Citi 24% Geopolitical tensions are front of mind for one in four large APAC corporates Top strategies companies are using to improve supply chain resilience: Greater supplier integration Expand supplier network in new markets Lengthening customer supply time Reducing number of suppliers in our panel Bringing supply chain partner shipment timing closer Expand supplier network in existing market Focusing on our key inventory items Increasing inventory buffers using “jic” 58% 51% 37% 37% 26% 24% 22% 21% GLOBAL TOP THREE OTHER STRATEGIC RESPONSES Chris Cox Global Head of Trade and Working Capital Solutions, Treasury and Trade Solutions, Citi suppliers. Supply chain finance uses the higher rating of buying companies to enable suppliers to gain early access to attractively priced finance. This increases suppliers’ resilience, shoring up the physical supply chain. Chris Cox, Global Head of Trade and Working Capital Solutions, Treasury and Trade Solutions, Citi, confirms that.