The metals and mining industry has been facing turbulent market conditions over the past few years. Declining commodity prices, increased international competition, spiking energy costs, and productivity falls have changed the industry. As traditional approaches, such as drawing down inventories and idling down production are starting to prove ineffective, miners are looking for new ways to increase competitiveness by optimizing their financial supply chains.
With a multitude of factors constraining capital and financial flows, it comes to no surprise that cost optimization has emerged as one of the key focus areas for metal and mining companies. Supply chains in these industries usually have fewer suppliers and source mostly locally, with significantly greater cash expenditures per supplier, upon which they may be very dependent. With such dependencies and limited numbers of suppliers, not only do mining supply chains rely on their own liquidity to maximize output, but also on the financial health of their key suppliers. Combined with the ceaseless challenge of reducing the amount of money bound in operational costs and the dire need to fund growth, miners are under pressure to look for ways to improve their working capital.
Learning from high performers in other industries is a great way to start. Companies in the mining industries, whether they are miners or equipment suppliers should look more what organizations in other sectors are doing to optimize their working capital and generate cash flows. And, there are great lessons to be learned from leading companies such as Volvo, Sainsbury’s and Kellogg’s. For these companies, and many others in the automotive, retail, and manufacturing industries, to name a few, financial supply chain management has become a strategic priority and is a solution that sets them apart from the competition. Supply chain finance is a popular working capital optimization tool and part of their strategic tools set.
Supply chain finance programs can directly improve business performance, competitiveness, and shareholder value. This is particularly true in the current cash-constrained market, where each incremental cash output can make a significant difference to the bottom line. Such supplier finance solutions allow the buying organization to extend payment terms in order to improve their working capital, whilst minimizing the risks to continuity of supply by allowing their suppliers to get paid earlier at attractive financing terms.