Cash Flow Is a Top Supply Chain Risk of 2021: Here’s How to Improve It
As we move into 2021, it has become clear that many of the issues that plagued the previous year are not going to go away lightly. In fact, until a vaccine has had worldwide distribution, it can be expected that the current status quo will remain untouched, with high uncertainty remaining within various supply chains across virtually all industries. Geopolitical tensions, the threat of nationwide lockdowns, shipping delays, limited workforce resources resulting from social distancing procedures, all of these risks and more have become the new normal.
In order to cope, adequate cash flow is critical for both OEMs and their supply chain partners to maintain a point of profitability. In a recent survey of 1,000 large, nonfinancial companies conducted by The Hackett Group, it was found most firms slowed payments to suppliers in 2019 before the pandemic as they collected cash from customers more slowly and held slightly more inventory. As a result, debt grew dramatically, reaching record levels and poorly positioning them for an event such as a pandemic, all while on-hand inventory continued to sit wasting warehousing space and accumulating carrying costs such as taxes and servicing fees.
Cash is undeniably king, and in times of economic uncertainty, it can serve as a life preserver should the company experience poor supplier performance, forecast errors, transportation breakdowns, weather disruptions, or other such unexpected obstacles. And while we may be in the throes of a current crisis, there are still options available on the market for businesses to increase cash flow immediately and better position themselves not just in the short term, but in the long term in preparation for the next global crisis (according to a recent report from the National Center for the Middle Market, most companies will face a supply chain crisis every four to five years).
One such option is one of the custom inventory ownership solutions offered by Partstat. Instead of making large purchases for inventory, tying up cash and bank lines in the process, customers can leverage Partstat’s balance sheet to have us either buy critical inventory direct from the component manufacturer or, in the case of inventory already on-hand, directly from the customer. This way, not only will the customer realize immediate payment and cash flow improvement, but Partstat will hold the inventory on their behalf until it is needed. In the meantime, Partstat will take care of all of the hidden costs associated with inventory including insurance, taxes, storage costs, handling, and administration, leaving the customer free to use their newfound revenue in a way that yields a more positive economic return.
Especially in times of uncertainty, companies need the flexibility on-hand capital provides. Increasing such capital, however, typically means sacrificing the market security on-hand critical inventory provides. With a Partstat inventory ownership solution, customers now have the ability to have both without compromise. No matter what 2021 brings, Partstat customers will be ready.