Last month I had the opportunity to participate in the "North America Supply Chain Finance and Trade Conference in Miami. This turned out to be an eye opener. Indeed, looking at the financial aspects of the Supply Chain in the current environment is really interesting. In a recent article, titled: "Recession: How will you play to win?", Deloitte Consulting points to five key strategies to secure cash and improve credit ratings, and these are:

• Draw down lines of credit
• Diversify and secure new lines of credit
• Monitor and manage receivables
• Work closely with Suppliers
• Tax planning

In this blog we have often spoken about the importance in working closely with suppliers. For many companies this results in asking their suppliers to reduce price, increase payment terms and others. I would argue that this is NOT what should be done at this point in time as it often puts the supplier in a difficult position, where they face major cash problems, which in turn may result in you being left with the issue of a failing supplier.

There are however other ways to work closely with suppliers. First let's gain a better understanding of how the eco-system between you and your supplier works and how much inventory is kept to take care of the variations in demand. How much capital stuck in this eco-system can become available by a tighter integration, a better sharing of forecast and demand information, a closer management of inventory levels and a better definition of responsibilities? This requires an open and honest collaboration between the partners, a good visibility in each other's operations and an open and trustworthy dialogue in a win-win approach.

The banker can also play a role in here. Indeed, the customer may want longer payment terms, which may cause problems with the supplier. In many situations, particularly when the customer is a large OEM for example, he has much better credit rating than the supplier. One of the ideas shared in Miami was for the supplier to be able to borrow the money owed by the customer, in advance of the payment, at the credit rating of the customer as he will be the one who pays the loan back. Obviously there is a cost to that, but it helps both parties manage their cash flows in line of their situations. Several examples of companies having embarked on such approaches with their suppliers were quoted. The suppliers are free to take advantage of not.

What was interesting though is that this is typically managed by the Supply Chain finance team, but that the information is not shared by the other Supply Chain members. I strongly argued that, to allow an integrated management of the Supply Chain, all information, including financials, should be shared by the team to allow them to have a complete assessment of the situation. Although many people agreed in principle, there still seems to be a barrier between finance and operations.

Managing cash in the current circumstances is critical for companies to prepare themselves for the future. Cash rich companies have a huge advantage as they can use their current financial situation to improve relationships with suppliers and customers alike. Yes putting finance (or is it the banker?) in the middle of the supply chain, will help companies get out of the current recession stronger and more profitable. It's worth keeping this in mind, isn't it?

Last month I had the opportunity to participate in the "North America Supply Chain Finance and Trade Conference in Miami. This turned out to be an eye opener. Indeed, looking at the financial aspects of the Supply Chain in the current environment is really interesting. In a recent article, titled: "Recession: How will you play to win?", Deloitte Consulting points to five key strategies to secure cash and improve credit ratings, and these are:

• Draw down lines of credit
• Diversify and secure new lines of credit
• Monitor and manage receivables
• Work closely with Suppliers
• Tax planning

In this blog we have often spoken about the importance in working closely with suppliers. For many companies this results in asking their suppliers to reduce price, increase payment terms and others. I would argue that this is NOT what should be done at this point in time as it often puts the supplier in a difficult position, where they face major cash problems, which in turn may result in you being left with the issue of a failing supplier.

There are however other ways to work closely with suppliers. First let's gain a better understanding of how the eco-system between you and your supplier works and how much inventory is kept to take care of the variations in demand. How much capital stuck in this eco-system can become available by a tighter integration, a better sharing of forecast and demand information, a closer management of inventory levels and a better definition of responsibilities? This requires an open and honest collaboration between the partners, a good visibility in each other's operations and an open and trustworthy dialogue in a win-win approach.

The banker can also play a role in here. Indeed, the customer may want longer payment terms, which may cause problems with the supplier. In many situations, particularly when the customer is a large OEM for example, he has much better credit rating than the supplier. One of the ideas shared in Miami was for the supplier to be able to borrow the money owed by the customer, in advance of the payment, at the credit rating of the customer as he will be the one who pays the loan back. Obviously there is a cost to that, but it helps both parties manage their cash flows in line of their situations. Several examples of companies having embarked on such approaches with their suppliers were quoted. The suppliers are free to take advantage of not.

What was interesting though is that this is typically managed by the Supply Chain finance team, but that the information is not shared by the other Supply Chain members. I strongly argued that, to allow an integrated management of the Supply Chain, all information, including financials, should be shared by the team to allow them to have a complete assessment of the situation. Although many people agreed in principle, there still seems to be a barrier between finance and operations.

Managing cash in the current circumstances is critical for companies to prepare themselves for the future. Cash rich companies have a huge advantage as they can use their current financial situation to improve relationships with suppliers and customers alike. Yes putting finance (or is it the banker?) in the middle of the supply chain, will help companies get out of the current recession stronger and more profitable. It's worth keeping this in mind, isn't it?