World Trade - April 2009 - (Page 26) SUPPLY CHAIN STRATEGY 1) Supplier Financial Collaboration. The difference between JIT and vendor managed inventory is more than just providing suppliers with increased visibility to upstream activities. This approach includes a downstream focus with an emphasis on collaboration between buyers and suppliers. Buyers need to identify and understand their suppliers’ financial cycles and proactively support those needs. The buyer’s responsibility is not to assume new financial supply chain risks outside their expertise. Instead buyers should be close to their suppliers, identify their financial condition, and collaborate to enable financing without assuming direct financial risk. 2) Financial Structure. In the current market, trade continues to be financed under sensible and appropriate terms. Buyers need to understand how suppliers access working capital finance and consider structures that facilitate financing. This could be a return to more traditional and conservative terms of trade—letters of credit—or modifying a traditional term of trade—time vs. sight letters of credit. Vertical awareness requires a solid understanding of the downstream supply chain’s liquidity and risk. 3) Manage Terms and Impact to the Supplier’s Financial Future. Structured open account terms have been great for buyers but challenging for suppliers who struggle to retain historical levels of working capital support. Don’t resist considering a partial, temporary return to more structured and supportive terms of trade. Traditional tools such as letters of credit offer suppliers and their bankers the enhanced comfort that comes with evidence of the buyer’s commitment to the transaction. They also provide discipline, visibility and, risk mitigation tactics. Effective terms management benefits all parties. 4) Know Your Supplier’s Financial Health. Evaluate your suppliers’ financial health by considering the following: Is access to finance dependent on posting letters of credit? Are they using letters of credit terms to secure/ collateralize their sales book to improve cash predictability? How is the supplier’s customer base performing? Are orders being reduced or cancelled leaving the supplier with unsold inventory? Are other buyers stretching out terms and potentially compromising a supplier’s cash cycle? Does the supplier have a solid and stable banking relationship with a reputable bank? These four elements can be key to implementing a win-win business strategy that helps buyers effectively navigate today’s global marketplace, confident that their suppliers are also strong partners for the long haul. WT Contributing Editor Jeremy N. Smith writes “Great Moments in World Trade” each month on the back page of the magazine. For reprints of this article, please contact Cindy Williams at williamsc@bnpmedia.com or 610-436-4220 ext. 8516. SUBSCRIBE TO: World Trade’s E-Newsletters The World Trader is delivering you: > Industry news > Supply chain news > Hot jobs of the week > Calender of upcoming events YOU CAN CHOOSE FROM ANY OR ALL OF OUR FOUR REGION SPECIFIC UPDATES AND/OR GLOBAL UPDATES: China Edition 1st Monday of the Month Europe Edition 2nd Monday of the Month Latin America Edition 3rd Monday of the Month India Edition 4th Monday of the Month Global Edition 1st & 3rd Tuesday of the Month The World Trader is only emailed to you if you register to receive it. Go to www.worldtrademag.com/enews to sign up today! 26 WORLD TRADE APRIL 2009 http://www.worldtrademag.com/enews http://www.worldtrademag.com/enews
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