The strength of the supply chain, a key factor for companies to overcome COVID-19
The supply chain is the set of elements that allows companies to deliver a product or service in order to satisfy the needs of the end customer. The COVID-19 crisis has put the resilience and adaptability of these essential business systems to the test, increasing the urgency to adopt measures and make them more resilient to potential future threats.
The recent pandemic and the subsequent health crisis caused supply chain disruptions across all industries globally with varying severity depending on supply chain resilience, which has challenged companies’ ability to carry out their core activities.
Supply chain resilience depends on several factors. High dependency on a single country or a small group of suppliers may cause a domino effect that ripples across the entire supply chain if a critical supplier is unable to deliver the ordered goods.
In addition, a very high percentage of the companies that make up supply chains are SMEs, companies that have most struggled during the pandemic. On the contrary, companies with capacity to outsource production to third parties in nearby countries (which is known as 'nearshoring'), are able to minimize the logistical impact of adverse situations, and therefore, ensure that their supply chains are less vulnerable.
The same applies for companies with high digitization levels. Without a doubt, the pandemic has been a turning point. Non-digitized companies have been forced to go digital to survive the pandemic, which has strengthened not only supply chains, but the entire value chain. The use of digital collection and payment solutions has intensified, and this has been reflected in their relationship with suppliers and customers, whose consumption habits have changed significantly and now demand more digital and sustainable purchases.
Digitization has therefore become a key feature in current business models, therefore companies which are capable of developing comprehensive digital business models will enjoy a strategic competitive advantage.
Sustainable supply chains
Carrying out a strategic review of the aforementioned factors is essential to ensure the resilience of supply chains. Day-to-day cash-flow management control measures can further strengthen supply chains and business models as a whole.
‘Supply chain finance’ facilities allow companies to manage supplier payments, and offer creditors the possibility of arranging advanced collection schemes. This financing instrument can be aligned with the sustainability strategies of companies as it can be categorized as social, green or sustainable.
SMEs are an essential part of large corporation’s supply chains but their bankruptcy rates have skyrocketed due to the pandemic. As a result, the demand for a social product – made available to large corporations so that they can provide their SME suppliers with access to financing - has also increased.
It is also worth noting that large corporations are increasingly focusing on sustainability: They define their own sustainability strategies and targets, have specialized in-house teams and carry out ESG audits of their supply chains to ensure they comply with defined objectives. BBVA has launched ‘sustainability-linked SCF’, a tool that encourages suppliers to become more sustainable, and thus, help large corporations to meet their goals.