Can financial planning support a healthy supply chain?
By Chris Wright, Partner and ARA specialist
For industries which are an integral part of the supply chain for food and other consumer products, a strong supply chain is fundamental to financial success, growth and brand loyalty.
Strengthening the supply chain is one of the most effective ways that you can protect your business from future disruptions which could impact your cash flow and that of both your suppliers and those that you supply.
Cash flow – The lifeblood of the supply chain
Cash flow is the foundation of a strong supply chain and, without it, you will struggle to operate at optimum levels.
For example, if you are hit with an unexpected cost that you must pay quickly, you may find that you don’t have sufficient cash reserves or income to meet other obligations such as paying suppliers.
This can result in poor supplier relationships, late fees or a break in the supply chain whereby you cannot supply the next business or consumer in the chain.
You can maintain and protect your cash flow by:
- Forecasting cash flow regularly: Use historical data and market trends to predict future cash inflows and outflows. This will help you anticipate periods when you need to budget strictly or when you can afford additional expenditure.
- Maintaining a cash reserve: Setting aside a cash buffer can protect your business from unexpected disruptions in the supply chain, such as delayed payments from buyers or increased ongoing costs.
- Managing receivables and payables: Issue invoices promptly and follow up on late payments. At the same time, negotiate favourable payment terms with suppliers to align outgoing payments with incoming cash.
- Leveraging Government schemes: Take advantage of Government support schemes designed for the agricultural sector, which can provide financial aid and subsidies that improve cash flow.
By maintaining a robust cash flow, you can ensure you have the financial flexibility to deal with the ups and downs of market demand and input supply, thereby stabilising your supply chains.
Beyond cash flow – The importance of relationships and investment
Despite the primary importance of cash flow in maintaining supply chains, it is also important that you support this strategy with your wider operations and business practices.
The supply chain is not a purely financial transaction. It relies upon your ability to work efficiently and to collaborate with others in the chain – and occasionally invest in new ways of working.
You can further support your supply chain through:
- Supplier relationships: Develop strong relationships with suppliers of seeds, fertilisers, and equipment. Reliable suppliers are more likely to support you with flexible terms during periods of reduced cash flow.
- Technology integration: Use technology to track and manage inventory levels, production processes, and distribution schedules. This reduces wastage and improves efficiency.
- Diversification: Diversify your crop portfolio or livestock to spread risk. Diversification can protect against market fluctuations and climate-related impacts.
- Understanding market trends: Stay informed about market trends and consumer preferences. This knowledge can help you adjust your production plans to meet market demand more effectively.
To enhance your supply chain, we recommend that you seek advice on your current financial position and build a strategy that prioritises cash flow, relationships and efficient working processes.
Our agricultural experts are here to help. For support, reach out today to discuss your requirements and goals.