5 ways companies can avoid potential supply chain disruptions

Large- and small-scale companies often rely on goods sourced across the globe. A critical component for a U.S.-based technology company might come from Taiwan, while a key part of a German automotive line could be in Canada.

Any slight interruption to the delicate supply chain environment can cause a myriad of issues, impacting both businesses and consumers. Proactive planning is the key for vendors, suppliers, and buyers to manage potential supply chain disruptions, according to Jeremy Jansen, head of Global Originations of Wells Fargo Supply Chain Finance.

He believes managing cash flow effectively is also essential for businesses navigating complex supply chains.

“COVID-19 took companies by surprise, vastly impacted the global supply chain, and taught us if we are not prepared, there could be material impact to the bottom line and your liquidity position,” Jansen said. “It’s important that businesses stay informed, flexible, and ready to execute on strategies to navigate possible supply chain disruptions.”

Jansen also asserts that flexible sources of working capital will be essential to businesses, such as a traditional supply chain finance program where a lender finances approved invoices from a buyer, which immediately injects capital into a supply chain by extending terms for the buyer and getting cash early to the supplier.

“This provides incremental liquidity into the heart of the supply chain,” said Jansen. “It offers a supplier and buyer a good source of working capital and some cushion during uncertain times. We are hearing from some of our largest banking clients on the desire to stretch out payment terms to their supplier base as they consider increasing inventory.”

1. Diversify your supplier base

Supply chain volatility doesn’t seem to be going away. While supply chains have stabilized since the peak of disruption, we’re still seeing occasional raw material shortages, port closures, and geopolitical risk driving a need for more agile inventory strategies and vendor diversification. Diversifying the vendor base helps to mitigate supply shortages and can provide the ability to pivot quickly when needed, limiting impact.

2. Focus on mitigating risk with trade letters of credit

A letter of credit (LC) helps mitigate risk in international trade by acting as a guarantee from the buyer’s bank that the seller will get paid, provided the seller meets the terms and conditions of the LC. It allows the buyer to make the payment at a later due date and provides the seller certainty of capital.

3. Ensure liquidity and extended payment terms programs are in place

These are your various payment types from card and automated clearing house (ACH) to supply chain finance and trade products. These programs don’t just support a buyer’s or customer’s working capital by supporting extended payment terms, they also provide an alternative source of liquidity to suppliers. By providing this option to its suppliers, the buyer can become a more meaningful partner for that vendor, helping ensure their supply chain stays healthy and agile.

4. Implement an inventory management strategy

Finance teams are balancing just-in-time against just-in-case models, requiring better forecasting and integration with supply chain teams to avoid overstocking or understocking sellouts, which can also impact working capital. Additionally, increase adoption of centralized treasury and in-house banks for visibility across the organization. We’re seeing working capital dashboards to standardize policies and monitor key performance indicators, globally.

5. Update technology 

Leverage AI and advanced analytics tools to manage better cash forecasting, inventory management, fraud detection, and scenario planning. Teams can move from reactive to predictive working capital management, integrating real-time data from ERPs and bank platforms for smarter decision-making.