Select Language

Search

Insights

No match found

Services

No match found

Industries

No match found

People

No match found

Insights

No match found

Services

No match found

People

No match found

Industries

No match found

Amid the Supply Chain Woes, Supplier Wellness Takes Center Stage

resource image
  •  Minute Read Clock/
  • ListenListen/ StopStop/
  • Text Bigger | Text Smaller Text

 

There have been plenty of headlines about how backlogs in the supply chain are causing headaches for both companies and consumers. Those challenges concern the physical supply chain, but it’s also causing ripple effects on the financial supply chain, which is essential to keeping the physical supply chain humming.

Think about a washing machine. It includes steel, motors, circuit boards, wires, and resin to make the wires, among other components. The costs for many of these inputs have increased in the current environment, making it more costly for each supplier throughout the chain. If any company in that chain—including the small resin supplier—can't stay afloat financially, that could cause disruptions that make their way upstream to the end manufacturer.

Many of the companies we speak with are turning their attention to the health of their suppliers. They’re looking for ways to keep their suppliers robust, which, in turn, will prevent disruptions to their operations. 

Supplier Health Worries

Concerns about the supply chain first emerged when the pandemic struck. Many corporate treasurers and CFOs were afraid that a wave of companies would go out of business, which meant their organizations would not get paid for the goods and services they provided. Those fears turned out to be largely unfounded. But nearly two years later, the supply chain woes have come to a head. 

We saw many companies reach out to their financial institutions to make sure they had enough liquidity to make it through the shock. Mostly, they wanted to make sure they could stock up on inventory to get ahead of potential supply uncertainties. 

Companies that typically called for 10 quantities of a particular product during a business cycle, for example, suddenly found themselves ordering 50 or 100. But their supplier only had enough cash flow to provide 10. That supplier also needed to pay their downstream suppliers, and so on. The dilemma many companies face is how to support their suppliers in this current environment while thinking more strategically about their supply chains overall. 

A Proactive Strategy

What we’re seeing now are more companies putting the adage “buy the umbrella before it rains” into practice. In our conversations with clients, supplier wellness is a major consideration. They’re concerned about keeping their supply chains healthy, and they’re becoming more proactive about making sure suppliers throughout the supply chain have sufficient working capital. 

Many companies have ample liquidity for their own operations. And given their experiences at the beginning of the pandemic, they’re now looking for ways to deploy their cash on hand to support their supplier ecosystems. They’re realizing that making an investment to limit vulnerabilities to any link in the supply chain is an investment in the long-term health of their own businesses.

They’re expressing interest in solutions such as Approved Payables Finance, or APF, which can benefit both suppliers and buyers. It enhances the buyer’s cash flow by extending supplier payment terms. At the same time, suppliers can choose when to receive early payment, enhancing supplier wellness. The end result is a reduction in supply chain payment disruptions—and it doesn’t necessarily require a substantial investment in cash or staff resources.

Disruption at the ports gets the headlines, but the financial impacts up and down the supply chain are just as critical. The key is to be strategic about your entire supply chain. 

Many businesses are contending with supply chain challenges, whether your suppliers are mostly local or from multiple international sources—the differences are only in scale. And as the current situation demonstrates, you never know when the next shock to the supply chain is going to occur, which is why it’s better to be prepared by having the right strategy and tools in place. 

 

People who contributed to this article: Vineet Bahri, Vice President, Global Trade; Nicholas Ray, Vice President, Global Trade; Isabela Mendes, Director & Manager, Global Trade and Dean Gillis, Managing Director & Head, Global Trade.

Read more
Reg Butler Director, Lead Supply Chain Finance

PART 1

Brian Belski’s 2022 U.S. Market Outlook

Brian Belski December 09, 2021

  In his 2022 U.S. market outlook, BMO Capital Markets’ Chief Investment Strategist Brian Belski explains why, even amid concerns aroun…


PART 2

The Current and Future State of the Global Supply Chain

Fadi Chamoun, CFA February 17, 2022

  BMO recently held an event to discuss the current state of supply chain bottlenecks, strategies for managing the crisis and when we can exp…


PART 3

Why SLLs Have Only Just Begun to Roar

John Uhren March 01, 2022

  When Enbridge Inc. launched its inaugural C$1bn Sustainability Linked Loan (SLL) in February 2021, it marked a milestone not only for the c…


PART 4

Amid the Pandemic, Market Structure Continues to Evolve

None April 01, 2022

  Change is on the horizon for electronic trading as the U.S. Securities and Exchange Commission revisits regulatory reforms in a market that…


PART 5

State of the Union: What Lies Ahead

Brian Belski, David Jacobson, Michael Gregory, CFA April 21, 2022

  Russia’s invasion of Ukraine has brought uncertainty to domestic and foreign policy as well as to the economy and the markets. It com…


PART 6

New Normal Yet to Come for Metals Prices: BMO Mining Panel

Colin Hamilton May 12, 2022

  Prices for base and industrial and precious metals are flying high, but experts gathered at this year's BMO Global Metals and Mini…


PART 8

Key Takeaways on Ag, Food, Fertilizer & ESG from BMO’s Farm to Market Conference

Dan Barclay May 26, 2022

  Join BMO’s Dan Barclay, Bert Powell, Joel Jackson, Ken Zaslow and Doug Morrow in this special episode from BMO’s IN Tune Podcas…


PART 9

M&A Markets Active Despite Macroeconomic Backdrop

Warren Estey May 19, 2022

  As much as deal-making has cooled in 2022 - dampened by market volatility, geopolitical uncertainty, the ongoing fight against COVID-19 and…


PART 10

Private Capital Seizing the Stage in U.S. Middle Market

Grant Thompson August 04, 2022

  Move over public markets, because there’s a new kid in town - well, sort of. It’s called private capital, and while it may h…


PART 11

Supply Chain Disruption: Key Challenges and Opportunities

Fadi Chamoun, CFA September 01, 2022

  New look, same great content! We’re proud to launch Markets Plus, our new podcast, where leading BMO experts share a wealth of timely…


PART 12

Achieving Returns in an Accelerating AI Environment

David Wismer October 19, 2022

  From improvements in Machine Learning and the development of new database systems to the development of sector-specific tools, significant …


PART 13

North American Investment Strategy: 2023 U.S. Market Outlook

Brian Belski December 21, 2022

  While 2022 has been “a year we’d like to forget,” 2023 will be the start of the multiyear trend toward normalization. In …


PART 14

Managing and Monetizing Your Transition to a Net Zero World with BMO and Radicle

Eric Jacks December 01, 2022

  When Calgary-based Radicle Group Inc. was formed in 2008 in Alberta as the first North American compliance market, the climate change narra…


PART 15

The Importance of Financial Forecasting

February 22, 2023

  Forecasting and predicting the future. They’re the same thing, right? Not really. We all make predictions at some point. Many of u…


PART 16

Why Water Access Should Be Part of Your Risk Metrics

April 20, 2023

  In the current tally of key risks and mitigants it’s easy to feel that the risk side of the equation is having a banner era; with bus…


PART 17

Understanding the Link Between Cybersecurity and ESG

John Uhren, Andrew Matheou February 02, 2023

  John Uhren is joined by Andrew Matheou, Head of BMO Capital Markets Global Transaction Banking, to discuss the topic of cybersecurity, and …




You might also be interested in