This article was originally published by Retail Touchpoints.
Good sales hide a multitude of sins. This has been true for many companies in the recent past, especially during last year’s rapid consumer spending recovery.
Today, however, the reverberations of the pandemic are beginning to lay bare the fragility of companies’ capital positions. Relentless supply chain shocks and major shifts in consumer habits mean warehouse shelves that sat empty a year ago are today sagging under the weight of immovable inventory. All that stock, paired with rising interest rates and outdated fixed-price customer contracts, is a working capital disaster waiting to happen.
And as if that weren’t enough to keep CEOs up at night, we also may or may not be barreling toward a recession. The typical indicators are undeniably there – slowing demand, rising interest rates, high inflation, an inverted yield curve – all buttressed by uncertainty and disruptions related to the pandemic and international conflict.
As a result, business leaders are grappling with an overwhelming number of unknowns. Will another COVID wave shut down shipping again – or, conversely, will the opening of previously closed ports cause further congestion? Will consumption continue to shift – or plummet? Will interest rates climb even higher, impeding the ability to borrow capital? Will a recession happen? And, if so, how severe and long-lasting will it be?
But while all this uncertainty is daunting, retailers and manufacturers are far from powerless. In the face of the oncoming onslaught, there are several smart working capital moves business leaders can make to soften the blow, narrow the impact, and “win in the turns” – all the while keeping an eye on long-term sustainability and growth.
First and foremost, retailers and manufacturers looking to maximize their working capital should work to achieve real-time, end-to-end supply chain visibility. Intelligent visibility technologies can now paint a complete picture of a company’s supply chain, engaging robust data that enables quicker decision-making, informed sourcing, dynamic planning, and greater resilience and sustainability.
While investing in a new technology during a cash crunch might be a short-term challenge, it quickly pays dividends. In working capital terms, these technologies work quickly to help companies capture both short and long-term savings – minimizing the inventory in their pipeline, as well as reducing upstream and downstream logistical costs.
Another way business leaders can maximize their cash is by developing a preferred supplier list: an agreed-upon register of pre-assessed companies from which a company purchases materials. There are several factors to consider when building out a preferred supplier list, including their capacity, the simplicity of their SKU mix, how collaborative they are, and their sustainability practices.
Among the many benefits inherent to these trusted relationships, there are significant financial advantages to preferred supplier lists. Most obviously, these registers save valuable employee time by taking away the guesswork of selecting from an infinite list of potential suppliers. They also dramatically reduce the time an organization spends on onboarding suppliers, procuring goods, negotiating deals, and mitigating risk. Preferred supplier relationships also help companies capture economies of scale by negotiating better prices in light of the volume of purchases being made.
Forward-thinking, data-driven companies can also capture major advantages by empowering their employees with information. Long gone are the days when successful companies kept employees on a “need to know” basis. When every employee has the information they need, as well as a clear line of sight to their own opportunities and the organization’s strategy, they are better positioned to make quick, informed decisions that can benefit the entire company. Even more, empowered employees will likely experience better job satisfaction, improving overall retention.
Employee empowerment can also have downstream benefits for your customers. Fully informed customer-facing employees are better equipped to make quick decisions to better serve those customers – perhaps quickly altering an order, or rerouting a shipment, to make sure a delivery arrives on time. Information can save real dollars and cents by keeping both employees and customers happy.
When a company goes into survival mode, it’s tempting to punt on factors that are seemingly not core to the business, like sustainability or R&D. However, this mindset can spell disaster in the long run.
When it comes to sustainability, the toothpaste is out of the bottle. Multiple countries and several U.S. states have already adopted regulations that require companies to ensure their supply chains respect human rights and/or the environment – and more are coming. Even in the absence of these regulations, sustainable practices are a necessary element of long-term growth and should not be sacrificed for short-term savings.
Likewise, while the margins companies can dedicate to R&D are shrinking, business leaders should do everything possible to sustain some level of innovation, such as an established center of excellence. Not only is innovation fundamental to long-term survival and growth, but it is also another opportunity for companies to maximize costs by attracting and retaining talent.
If companies look at oncoming challenges through a solely “cost avoidant” lens, they will lose. In contrast, those that innovate and invest further in supply chain sustainability will create new revenue streams. Treating sustainability and innovation as profit centers, rather than costs, will drive long-lasting results.
The world of million-dollar write-offs subsidized by almost-free money is in the rear-view mirror. Ahead lies a treacherous road through market shifts, rising rates, mergers and acquisitions. Some businesses, especially those weighed down by a glut of high-cost materials lapsing into obsolescence, may not be able to ride it out. Companies that want to survive must do everything they can to be lightweight, agile, and strategic – to win in the turns – all the while, never taking their eyes off the long horizon.