December 1, 2023 Strategies for Financial Stability in Supply Chains

Manufacturers can utilize effective strategies to improve the financial stability and efficiency of their businesses.

By Brian Geen – VP, Relationship Manager, Enterprise Bank & Trust, Member FDIC

While commodity shortages, port logjams and other disruptions have eased, industrial and manufacturing businesses continue to apply lessons learned from recent periods of instability to make logistics and distribution processes more nimble and resilient.

Proactive manufacturers prioritize not just navigating the current economic environment but also preparing for any future uncertainties. While retail and distribution supply chains face inevitable and unpredictable fluctuations, improved financial efficiency can help strengthen market position.

Reevaluating operational processes can identify opportunities to increase a company’s financial position, and understanding current trends can help them stay ahead of the competition.

Manufacturing businesses must deal with rapidly evolving markets, higher costs, supply chain shifts and delays, higher interest rates and the growing cost of borrowing. The best plans utilize:

• More consistent and diversified suppliers.
• Regionalized supply chains.
• Production and warehousing investments, such as additional equipment or storage.
• Increased use of automation, artificial intelligence and robotics.
• Modernizing sourcing technology.

Many nations remain skeptical about cross-border trade, thus increasing localized production trends within North America. Despite widespread market fluctuations, demand remains high and resources limited for industries within manufacturing. Companies in this market can utilize the efficiency practices above to increase productivity when trying to meet demand, before resorting to more substantial investments or risk.

Businesses in this sector heavily rely on recurring revenue to maintain steady cash flow. Because reliable relationships remain essential to achieving sustainable growth, independent manufacturers’ or smaller companies’ revenue can be cut short due to staffing issues and limited ability to take on new clients. Seasonal factors also create uncertainty; for example, in the wholesale industry, demand can drop during the first fiscal quarter due to a post-winter holiday reduction in retail sales.

Fortunately, there are solutions to these problems, especially through creating a collaborative and mutually beneficial relationship with a financial services provider.

To propel a business forward, developing both short- and long-term plans can help companies navigate any surprises in a supply chain and corresponding cash management plan. In an unstable market where share is up for grabs and positive cash flow can be a competitive advantage, make time to connect with internal teams and outside advisors to evaluate which financial strategies can help increase margins. Consider obtaining a line of credit for additional financial breathing room during periods of uneven cash flow caused by seasonal demand, or reevaluating the size of existing lines of credit based on current circumstances.

To optimize a cash position, the following action items allow business leaders to assess and understand needs, vulnerabilities and opportunities:

• Look for ways to automate financial functions by utilizing tools such as ACH payments, online bill pay and wire transfers, and explore digital solutions that can cut down on operational costs.
• Schedule time to connect with a banker and other advisors to prevent financial surprises and understand factors that may impact your cash position.
• Review client, vendor and supplier history to give context to the cash flow state and evaluate the status of a supply chain.
• Prepare for supply chain adjustments that could require identifying alternative suppliers and have a vetted standby list ready to implement, if needed.
• Explore localizing vendors and other opportunities to base production out of the local region to boost efficiency and cut transportation costs.
• Create a strategic financial plan with help from financial advisors to prepare for “off-season” periods.

Inevitably, manufacturers will face the need to contend with stringent customer requirements while grappling with inventory shortfalls, rising fuel and shipping costs, unpredictable purchasing patterns and other uncertainties. Innovative companies will continually evaluate and rethink their conventional supply chain and logistics practices and never assume the status quo will remain viable.

Brian Geen serves as VP, Relationship Manager at Enterprise Bank & Trust. He provides financial expertise for business clients, including manufacturers, distributors and service providers.

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