With global supply chains becoming more complex and geopolitical uncertainty increasingly impacting global trade, thus changing the nature of trade flows, supply chain finance can be an important tool to help eliminate those risks, according to “Building Resilient Supply Chains Amid an Uncertain Geopolitical Landscape,” a new HSBC report published in collaboration with Procurement Leaders, a World50 Group Community.
While supply chain disruptions are nothing new, complex modern products have become dependent on many different components sourced around the world, thereby making an unexpected event impacting supply chains more harmful. As such, trade experts advise that companies rethink their approach to sourcing, focusing on building supply chains that are transparent and where possible simpler, resilient to geopolitical risks, sourced from markets closer to home and not reliant on one sole supplier of goods and materials.
Supply chain finance is another important tool that companies can leverage to decouple their financial supply chain from their physical supply chain, according to Marissa Adams, Americas head of global trade solutions. She said supply chain finance allows organizations to hold more inventory on a cost-neutral, balance-sheet friendly basis. Injecting liquidity into a trading relationship can add resilience and safety buffers.
“An intelligently designed supply chain finance program can do a lot of heavy lifting in terms of de-risking trading relationships, improving supplier resilience and providing suppliers with the finance to invest in and develop their businesses,” Adams said. She suggested that companies follow a four-stage risk assessment and remediation process to plan for uncertainty:
- Take a risk-based approach to sourcing analysis. Rather than reviewing threats by tier, stock-keeping unit or category, focus on those areas in which the organizations is most at risk, or where the biggest dangers lie. Often, these areas will be associated with specific regions or countries.
- Analyze the consequences of supply disruption. Estimating the likelihood of disruption is difficult, but exploring the likely consequences of any disruption is not. Which products or product groups would be impacted? How quickly? For how long? Are any substitutes available? What might the financial consequences be?
- Review the options available to help avoid disruption. What other suppliers exist? Where are they located? Do they offer the same product, i.e. like-for-like? How viable are they in terms of scale, technology maturity, time-to-market and quality? Do you need to locate one, two, or even more alternative suppliers?
- Repeat this process as necessary to avoid new and emerging risks. If recent history has taught us anything, it is that the world doesn’t stand still: geopolitical uncertainties arise over time. Your product offerings and supply base evolve. Repeat the exercise as new threats and vulnerabilities emerge.
This latest trade report follows the launch of HSBC Global Trade Solutions, a new identity for the bank’s long-standing Global Trade and Receivables Finance (GTRF) business. Global Trade Solutions builds upon HSBC’s foundations as a trade bank, while creating new ways to connect the world through trade. The new direction focuses on supporting businesses for the future, helping them navigate the constantly evolving landscape of global trade by harnessing HSBC’s long-standing network, expertise and solutions.
