How To Manage Cash Flow Pressure In Supply Chain Management?

In times of crisis, cash is the indisputable king.

Over the years, having been in the supply chain industry, I have often found clients and friends in the business, worry about the challenges they face in maintaining a steady cash flow in their supply chain, more so when their manufacturing base is overseas.

It is only inevitable that all CFOs and COOs have been compelled to re-evaluate their pre-pandemic strategy, concentrating their efforts to safeguarding the organization's financial health.

Understandably, cash flow is always a concern for supply chains, and managing cash flows has become even more crucial post pandemic. Cash flow pressures can be the bane of supply chain management. It goes without saying that a company's ability to manage its cash flows—which may be particularly challenging when working with suppliers—is a key component of success.

Although cash flow constraints might take many different shapes, they typically start with inventory levels. Your company will suffer from potentially fatal financial stress if you're unable or unwilling to buy or sell merchandise rapidly enough.

?? Reducing Cash Flow Pressure

Cash flow pressure is a real issue in supply chain management and a concern that can appear is every step of the way. While it can be difficult to manage, there are ways to reduce your cash flow pressure and increase your business's profits. Here are some of the ways to manage and reduce cash flow pressures in supply chain management:

?? Building Strong Relationship With Your Carrier

Developing and maintaining a strong relationship with your carrier is essential for controlling cash flow. Having proper contact with your carriers will only help maintain a steady cash flow. Regular contact may help your organisation and carrier understand each other's capabilities in each transaction, opening the possibility to discussions and negotiations.

Implementing carrier scorecards is an excellent way to improve communication and save costs. Carrier scorecards give carrier ratings that encourage performance, while also saving money. A strong relationship with your carrier will not only aid your business but will also provide your organisation with a better grasp of its requirements. If your organisation has specialised freight and transportation needs that only certain carriers can provide, prioritising such connections will save you time and money.

?? Have A Freight Audit And Payment Service

To effectively manage cash flow, the business's finances must be carefully planned. A Freight Audit and Payment (FAP) system verifies that the actual freight invoice meets the agreement made at the time of shipment. Payments are handled manually in the absence of a FAP service, which is time-consuming and may increase the chance of error, resulting in overpayments.

Not only that, but it raises the company's labour expenditures while also delivering inaccurate cost projections. Companies can use the FAP service to compute expenses and provide estimates, albeit it does necessitate caution in anticipating miscalculations.

?? Revamp The Invoice Payment Process

If cash flow is a problem for you, then it might be time to reconsider your payment process. Implementing a streamlined payment process may be a beneficial step for your company, especially if you have an accounts payable department that handles transportation expenses. To see if this is the case, consider your company's payment timing, frequency, and key customers. This analysis may reveal issues such as late or incorrect payments, or a lack of payment options preferred by carriers.

You can resolve these issues while also lowering costs associated with manual tasks and paper-based processes by switching to electronic payments, which can be processed quickly and accurately. Another option to consider is automating your payment process with software that integrates with your accounting system, tracks carrier information, invoices, and costs, and handles payments to carriers in their preferred currency.

?? Focus On Optimizing Inventory Levels

Optimizing inventory levels is a critical step in managing cash flow pressure. Excess inventory indicates that you are not selling enough of the product or service to fulfil demand or to make a profit. Consider lowering your inventory holding expenses by selling unwanted things on an online auction site or marketplaces such as Amazon Marketplace and eBay.

You may also explore renting out extra warehouse space to third parties that use it but don't want their own space cluttered with things they no longer require, such as rental firms in need of storage space. Furthermore, you can also consider optimizing inventory levels based on forecasted sales for each product category and based on region.?

?? Revisit Your Capital Investments

More and more companies are realizing the strategic values of modern technologies. The covid-19 pandemic forced companies to shift their attention to new investment opportunities, partly due to change in buying behaviour and partly due to the major serious disruptions that engulfed the supply chain management industry due to the pandemic.

Automation, for example, is a rising star when it comes to new investment opportunities. New technology like automated real-time analysis tools allow for efficient cash flow management by not only eliminating the manual process, which is often prone to human errors, but also increase overall accuracy and shorten the amount of time operations require.

?? Transportation Spend Management (TSM)

Transportation Spend Management can assist businesses in gaining complete visibility over their transportation routes and costs, as well as saving money and increasing cash flow. It is about transitioning the company from relying solely on Freight Audit and Payment to becoming proactive in transportation issues and gaining control over the company's growth and finances. Companies can combine all of these solutions with TSM by strengthening carrier relationships, maintaining open lines of communication, and implementing an efficient payment system. TSM contributes to greater visibility and solutions by examining data from all angles.

Here Are My Concluding Thoughts

If cash flow is an issue for your company, then it is high time to revisit individual elements within the supply chain and analyse where the issue lies. Developing better relationships with your carriers can help reinforce some of the major aspects of your supply chain. Similarly, if you are still relying on cumbersome and outdated technology, it might be useful to revisit them and invest in different ventures. Strategic and smart thinking can help optimizing your cash flow and increase efficiency.??

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