As owners, CEOs and CFOs you are preparing to reboot your business as the markets you serve are coming out of Covid-19 lockdown that impacted about 80% + of the $80 Trillion global economy across 190 countries. We are looking at GDP contraction of an annualized 25-40% for most of the larger economies during the March-June period. The financial injections from Federal Governments and Central Banks are expected to run close to $8-10 Trillion by the time the situation begins to mend. The stock markets true to their merry maverick nature have been cheerleading for a V-shaped turnaround. In contrast, its bigger cousin the bond market, despite many high yield bond raises, has remained sluggish flagging potential defaults in the credit markets, and the healthcare specialists are warning of the risk of a second wave with best-case vaccine availability projected for summer of 2021. This is our post-covid-19 terrain and calls for a new mindset.
Over my years with GE Capital, working with larger product and services businesses, it became evident that the focus on lean manufacturing and JIT inventory models made the businesses capital efficient with constantly improving inventory turnover ratios. This worked well if all participants of the supply chain were working like a symphonic orchestra. Since leaving GE Capital, I have spent an equal amount of time in startups and MSME businesses to recognize that due to capital constraints and volatility in demand, it is challenging to achieve capital efficiency as there are many factors outside of an MSME’s control. This has got further compounded with the impact of the lockdown forcing MSMEs to rethink how they balance the risk and the opportunity around the physical and financial health of their supply chain – the bedrock of their business. As we consider possible rebooting options, we need to take into account thematic changes of a concerted push, in most large markets, to bring the supply chains closer to the served markets or in locations that are considered allies in the global trade system.
The lockdown has opened our eyes to a new working model. The availability of cloud-based technology platforms offers a unique opportunity for MSMEs to run their businesses remotely. While your suppliers and customers are physically at different locations, cloud-based platforms can help you bring them together on a common digital network. These cloud-based platforms can be used to assess the financial health of your supply chain by sizing your credit exposure. The history of the trade, within this digital network, between you, your suppliers, and your customers offer critical data to assess the risk and makes it possible for financing your AR or seeking additional terms on your AP through financial structures. The use of short-term funding is a smart way of risk transfer by leveraging financial expertise skilled at assessing the financial risks in your supply chain.
Paulo Coelho (a world-renowned author) in his numerous interviews has said “Let us ask the right questions and open all doors with them”. Drawing inspiration from his inquisitive mindset, here are a list of questions to think more systematically about your supply chain.
How has the demand and supply situation changed for your business?
What are the new opportunities for your business given the change?
What are the risks due to the change in demand and supply?
Is there a model to construct your supply chain like you would engineer a product?
What risk transferring financing and insurance product options are available?
How do you adapt a technology platform that prepares your supply chain for a virtual world while also supporting financing and risk transfer solutions?
Can being on a platform that creates a digital supply chain network generate new business opportunities?
Vayana’s network, supply chain enablement, and risk transfer teams are working on approaches to these sets of questions. Get in touch with us and we would appreciate the opportunity to share our learnings and partner with you in your Reboot journey.
Author: Kannan Ramasamy (Executive Chairman – US, Vayana Network)