How can financial advisers help clients with supply chain risk?

If your clients rely on supply chains to be able to provide their products or services, managing the related risks is likely to be high on their agenda. 

They may also not know that as their financial adviser, you can help them spot and mitigate issues in their supply chain before these issues have the chance to do some real damage. In fact, there are a number of short- and long-term solutions that you can help them implement today. 

Supply chains are an essential and often unseen aspect of modern life. When they function well, they ensure that parts or products from different corners of the globe arrive at the right place at the right time.

When they go wrong, however, they can quickly result in frustrated customers, rocketing costs and damaged reputations. As a financial adviser, you have an important role to play in making sure that doesn’t happen.  

Supply chain risk management is an important part of business planning and strategy for a lot of companies. The globalised nature of the world economy means that it is very rare that a company does not rely on other companies for some part of its operations. 

Whether it’s importing the perfect baking sprinkles from Europe or using local ingredients, a business can quickly find itself in hot water if it can no longer source these essential materials.  

As a financial adviser, it is your job to understand every aspect of your client’s business.

Many companies struggle to maintain visibility over what happens further up and down their supply chains, meaning that delays and disruption can seemingly come out of nowhere. Helping your clients better proactively monitor their supply chains and lower risk can mean that when issues do arise, they are not as destructive.  

Here’s some steps you can help your clients take today. 

Upgrade their due diligence  

Due diligence is an essential part of any supply chain manager’s role. If your client is a small company, they may not have a defined role for this and it may be account managers or people in other positions that are covering the management of suppliers.

This could result in due diligence processes that are rushed or not as comprehensive as they should be. This is an area where you can quickly add real value to your client’s business.  

Some things to consider are:  

• Perform a complete review of your client’s third-party ecosystem – you may know exactly who your client’s tier 1 suppliers are, but what about tier 2?
• Assess the full third-party risk profile of your client – do they have a particular dependence on a sector or geographic location, and can this be addressed?
• Establish an ongoing monitoring plan that can track any changes in supplier situation, performance or the market  
• Make sure to regularly review due diligence processes to make sure that they are still relevant and providing accurate insight 

Diversify your supplier base  

Aside from unforeseen macro factors such as natural disasters and regional economic shocks, perhaps the biggest supply chain risk that companies run into is a dependence on a single or small group of suppliers. 

When the ability of a company to operate relies solely on the performance on another, it is always going to be in a potentially vulnerable position. As a financial adviser, you should be strongly advocating that your clients explore ways to diversify their supplier base.  

Engaging multiple suppliers brings a lot of potential benefits when it comes to supply chain risk mitigation. Firstly, it allows clients to reduce the risk of localised disruption by giving you options in different locations.

Secondly, it has the potential to help your clients find better quality or better valued solutions, helping to improve the profitability and quality of the end product or service.  

Having potential suppliers in mind is one thing but being able to mobilise them quickly if your client’s main supplier fails unexpectedly is another. 

This means it should be a priority to enter into agreements with potential alternative suppliers so that they can reserve production capacity. 

Build end-to-end visibility  

You can’t react effectively to issues you don’t know anything about. A surprising number of small businesses are finding out that they don’t have much visibility over how their supply chains work day-to-day. 

For example, your client may know when the products they need leave a supplier’s warehouse, but do they know what route or shipping method is used?  

Part of increasing supply chain visibility is trying to work with suppliers more closely, but there are a range of digital solutions available too. This can represent a significant investment for your client, so make sure that there is a good chance that any new solution will actually help to create value.  

Involve partners in risk planning  

It can be easy for supply chain partners to operate in silos and only communicate to place orders or flag an issue.

By reaching out and involving suppliers in risk planning, your client can not only gain much more insight into the way their suppliers work but create a stronger, more resilient supply chain in the process. 

For their part, suppliers may not be fully aware of the challenges your client faces or have a true understanding of their market. By creating a constructive and collaborative conversation about supply chain risk, you may be able to help your client create new measures and solutions.  

Build up cash reserves  

Unfortunately, supply chain problems are something that most companies are going to have to deal with at some point. The goal is therefore to make sure that if it does happen, your client is able to weather the storm and emerge relatively unscathed. 

One of the most important ways that your clients can do this is by building up cash reserves and making sure they have a good store of liquidity.  

While this sounds simple in theory, the reality is that it is often not that easy for small businesses to accumulate extra cash.

The best course of action for your clients will depend on their current position as well as the market they operate in. This could involve tightening up the invoicing process and trying to reduce late payments, cutting outgoings or looking to pay down debt more aggressively.

Prearranged lines of credit may be another alternative, but it is worth noting that operating losses caused by supply chain disruptions could prompt lenders to try and renegotiate the terms of any agreement.  

As a financial adviser, you are a vital source of expert guidance for your clients. Make sure your next client finds you easily by joining Unbiased today.