Preparing for Disruption – How Supply Chain Finance Can Mitigate the Impact

Contingency planning and assessing risk are critical parts of any business strategy, but their importance has come into the spotlight in 2024. Natural disasters, geopolitical conflict, and labor strikes (both potential and realized) have had an ongoing impact on global supply chains. 

One only has to look at the activity across the Atlantic hurricane basin these last few weeks to understand the scope of that impact. Hurricane Helene has wrought devastation across a large part of the southeastern U.S. While the most important priority is and should always be helping people rebuild, the supply chain impact can’t be overlooked. The devastation of high-purity quartz mining in Spruce Pine, North Carolina will undoubtedly have a downstream impact on semiconductors – an industry that has just found its footing from a pandemic-era global chip shortage. 

Not far down the road is Baxter International, which produces 1.5 million bags of intravenous solution a day. The company has been forced to stop production following flooding and hospitals are already feeling the effects. 

Labor strikes have also been a disruptive force in 2024. In Europe, strikes in the travel and industrial sectors have been persistent. In the U.S., a large-scale but thankfully short-lived port strike exposed significant vulnerabilities in the supply chain. The strike was the industry’s biggest work stoppage in nearly half a century, according to Reuters, costing the American economy $5 billion per day. The cargo backlog at affected ports will take weeks to work through, which has impacted delivery of inventory to retailers like Walmart, IKEA and Home Depot. And the clock is ticking – the deal is tentative and extends only through January 15, 2025.

The number of disruptive events affecting supply chains appears to be growing. The question is what do business leaders need to do now to prepare not only their supply chains but also their financial supply chains. 

Understanding the Impact of Disruptions

Disruptions – both foreseen and unforeseen – can have a devastating impact on businesses, particularly those with complex supply chains. The disruption to production, delivery, and overall operations can lead to significant cash flow challenges. 

• Production Delays: Halted operations mean reduced output and missed revenue opportunities.
• Inventory Shortages: Disruptions in the supply chain can lead to stockouts, impacting sales and customer satisfaction.
• Increased Costs: Repairing damages, replacing inventory, and adjusting operations can drive up expenses.
• Cash Flow Strain: Delayed incoming payments, demand for early outgoing payments, and increased costs can put a significant strain on a company’s finances.

The Role of Supply Chain Finance

Supply chain finance (SCF) can be a powerful and valuable tool to mitigate these negative effects and accelerate financial recovery from disruptive events. This applies to both buyers and suppliers. 

Let’s start with suppliers – often the more vulnerable party of the two. Enabling early payment to suppliers provides them with much-needed liquidity as they recover and rebound. This can alleviate stress on cash flow and prevent defaults on financial obligations. It can also provide the funds needed to replenish stock levels after a disruption, ensuring that operations can resume smoothly.

The benefits for buyers are largely the same. By unlocking working capital trapped in the supply chain, buyers can access debt-free liquidity that can be used to rebuild affected infrastructure, diversify their supplier base, invest in initiatives that minimize customer operations, and others. It’s also part of good business ethos – having the financial capacity to foster stronger supplier relationships in the face of disruption typically benefits buyers in the long term. 

Supply Chain Finance is a Powerful Lifeline

If the last five years have taught us anything, it’s that disruption is inevitable and will continue to play an ever more important role in our lives. As business leaders update their disaster response and contingency planning strategies, SCF needs to be a resiliency tool in the playbook. Time and again, PrimeRevenue’s customers have used SCF as a lifeline to weather disruptions and emerge stronger. Preventing disruption may be out of our hands, but preparation is not – and tools like SCF can make all the difference.