This article was originally published in the Sourcing Journal
Jan. 30, 2023 | LINK
“If there has been one thing missing from the supply matrix these past 18 months it would be stability. From delays and out of stocks, to smoother sailing and excess inventory, extremes have become the industry norm.
Stability is a word few would use to describe supply chains these past 18 months. In fact, “extreme” is more fitting, considering how overzealous consumer shopping was countered by out-of-control freight costs, shipping delays, port backlogs and retail out of stocks.
“As disruption continues to occur on all levels of the supply chain, it has never been more important for organizations to understand their entire supplier ecosystem to mitigate future risks,” said James Gellert, RapidRatings Chairman & CEO.”
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The state of supply chain finds itself in its most challenging period since the financial crisis of 2008. Suppliers who struggled to keep their doors open during COVID extended their fuse life with federal aid funding and astonishingly cheap and plentiful capital. Now, with inflation at a historic high and a labor market that is red-hot, access to capital is swiftly being pulled back while at the same time debt payments have more than doubled thanks to interest rate hikes.
As RapidRatings Chairman & CEO James Gellert discusses in this report, private suppliers with operational deficiencies and weak financial health will find themselves carried away by the tide when the credit tsunami comes, leaving their end customers high and dry and vulnerable to supply chain disruptions.
“Times of high inflation comes with more conservative interest rate management; with that you have a tampering of credit availability. Higher costs of debt and less access to capital means that many small suppliers—that extended their fuse life during Covid through by borrowing—are now finding it more challenging to refinance their capital and are being squeezed by high interest rates as well as high costs of raw materials and labor. This will all play into whether smaller companies will be able to survive when the credit wall hits.”
The silver lining during times of volatility is that it brings opportunity to foster better supply chain partnerships and integrate more forward-looking risk management strategies. Risk management starts with us.
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