The supply chain disruptions caused by COVID-19 have led Australian businesses to react, rethink and refocus their priorities in new and innovative ways.
Every part of the supply chain, from production to outputs and cash flow, has felt the strain from the pandemic. Businesses have not only had to innovate to ensure their survival but pause, reflect and realise that COVID-19 can serve as a tool to uncover where the gaps in processes lie.
New survey data commissioned by American Express – the Global Business Spend Indicator – has found that COVID-19 is pushing businesses surveyed to review their supply chains to streamline processes, introduce greater flexibility and realise cash flow benefits.
Each quarter the research looks at how and where Australian businesses have spent, are spending and intend to spend. It provides valuable insights into how businesses are shifting in response to the pandemic’s market pressures and how they are future-proofing themselves to weather upcoming uncertainties.
In the past 12 months, approximately one-fifth of Australian businesses surveyed took steps to simplify their network of suppliers. Twenty per cent of respondents reduced or avoided long-term commitments and 16% preferred suppliers with flexible payment terms – suggesting that many are reviewing their cash conversion cycle. Indeed, 44% of respondents now see flexible payment terms as crucial when evaluating its network of suppliers.
A further 44% of respondents said that geographic location was very important in the supplier evaluation process, with 24% of businesses surveyed stating that location was even more important in light of the pandemic, suggesting a renewed focus on working with local or regional entities. The current drivers of change are fluctuating market conditions and rapid digitisation in payment systems. This means that businesses need to have the capacity and necessary systems in place across their supply chain to operate with agility and resilience.
Supply chain relationship building has always been important. And it’s even more vital now. Long-term customer loyalty wanes as businesses respond to pandemic market pressures and try to realise greater operational efficiencies and agility.
The opportunity for Australian businesses now is to embrace change in their supply chains by rethinking processes and reimagining solutions. Knowing where to start to make the most of this reality can be difficult. But there are steps that businesses can take to streamline their supply chains to increase operational agility.
1. Simplify your supply chain
As ongoing lockdowns create challenges, such as production disruptions, delays in deliveries and higher transport costs, it’s essential to assess the location of your suppliers and identify contingency plans. This is particularly crucial when inter-state or international restrictions come into effect, as we’ve seen recently.
2. Reduce costs
Shop around and make sure you’re still getting the best deals for your business. But also weigh up the intangible benefits you enjoy from existing suppliers that can be cost-effective in the long term, such as reliability.
3. Supplier flexibility
Review your current supplier payment terms to see how you can work them to your advantage, such as extending re-payment terms by an additional 15, 30 or 60 days. Consider using business credit or charge cards to realise reward benefits and increase operational flexibility by extending payment windows. The result may enable businesses to optimise working capital, so they have more cash flow available to meet daily operational expenses.
4. Nurture your relationships
Relationship building is now even more crucial so approach your relationship as a mutually beneficial ‘win win’ situation for both parties. Suppliers are a vital part of your business as they provide necessary resources, knowledge, access to connections and technology, so don’t undermine the extra benefits they offer.
While change can be disruptive, it can also serve as a reminder to take a strategic view of your processes and ask yourself if they are still meeting your evolving needs. Longer-term, it could deliver dividends, better performance and more satisfied customers.