Digital Efficient Strategies for Manufacturers on Supply Chain

Manish Kumar, CEO & Founder, KredX finances the supply chain companies on his digital platform. An interaction with him.

What are the challenges faced by manufacturers in managing working capital and meeting financial obligations along the supply chain?

Manufacturers often encounter a myriad of challenges when it comes to managing working capital and meeting financial obligations across the supply chain. Here are some key points illustrating these challenges:

Inventory Management Achieving the delicate balance in inventory management, ensuring that it meets demand while minimising excess stock, poses a considerable challenge for manufacturers. Deloitte's study highlights the detrimental effects of inefficient inventory management, which can tie up a significant portion of working capital. This inefficiency leads to increased costs associated with storing excess inventory and reduced cash flow due to capital being tied up in unsold goods.

Cash Flow Volatility and overstocking issues Fluctuations in demand, production delays, or payment delays from customers can lead to cash flow volatility. Unpredictable cash flow can hinder a manufacturer’s ability to meet financial obligations, such as paying suppliers or servicing debt. Moreover, overstocking, investment incapacity; and allowing customers too much credit can limit the growth potential of manufacturing companies.

Supplier Relationships Manufacturers heavily reliant on a limited number of key suppliers face significant risks, including supply chain disruptions and price fluctuations. Strained supplier relationships can further compound these risks, impacting payment terms and straining working capital management. Diversifying supplier networks and fostering strong, collaborative relationships with multiple suppliers are essential strategies for mitigating these risks and ensuring a resilient supply chain.

Credit Constraints Access to affordable credit is indispensable for effective working capital management, yet smaller manufacturers often encounter challenges in securing financing. Limited access to credit not only constraints growth opportunities but also undermines liquidity management efforts. Manufacturers must explore alternative financing options and cultivate relationships with financial institutions to overcome these credit constraints and sustainably manage their working capital needs.

Regulatory Compliance Navigating various financial regulations adds layers of complexity to working capital management for manufacturers. Compliance with accounting standards such as GAAP or IFRS necessitates accurate financial reporting, which can be resource-intensive, particularly for smaller firms with limited resources. Manufacturers must allocate sufficient resources and implement robust processes to ensure compliance with regulatory requirements, thereby safeguarding their financial health and reputation in the marketplace.

In light of these challenges, manufacturers must adopt proactive strategies such as implementing robust inventory management systems, diversifying supplier networks, optimising payment terms, and exploring alternative financing options to ensure efficient working capital management and meet financial obligations across the supply chain.

How supply chain financing solutions alleviate working capital constraints by providing timely access to funds

Supply chain financing solutions play a pivotal role in mitigating working capital constraints by ensuring timely access to funds, especially in regions like India where late payments are prevalent among B2B customers. Studies reveal that 96.7% of respondents (businesses) reported delays in payments, this practice not only creates friction between buyers and sellers but also jeopardizes the stability of the entire supply chain.

In such a scenario, supply chain players, particularly small and medium-sized enterprises (SMEs), often feel compelled to exit the supply chain, disrupting operations and leading to delays. However, innovative supply chain finance solutions can help vendors sustain operations without disruption. By providing early payment solutions, supply chain financing fosters an efficient supply chain ecosystem, reducing manufacturing costs, improving market access, and accelerating growth rates. Moreover, by freeing up cash flow and working capital, supply chain financing alleviates pressure on vendors and eliminates the need for borrowing at high interest rates. This enhances financial resilience, particularly crucial in today's uncertain economic environment.

In fact, the newest MSME payment regulation, which mandates a 45-day payment period for large enterprises to settle dues with MSMEs, supply chain finance emerges as a strategic solution to address the challenges posed by this regulation. It offers a practical remedy to mitigate the impact of delayed payments by providing timely access to liquidity. By leveraging supply chain finance, MSMEs can optimize working capital utilization, alleviating the strain caused by the extended payment period.

According to industry reports, the average working capital requirement for small businesses increases by approximately 40% compared to other times of the year. Research shows that supply chain financing can result in a 30% reduction in cash conversion cycles for small businesses during the festive season. Moreover, it reduces reliance on traditional lending channels, providing small businesses with greater financial autonomy and flexibility. That said, smooth operations during the festive rush depend heavily on strong relationships with suppliers. Supply chain financing strengthens these relationships by enabling prompt payment solutions and offering financial stability to suppliers. This fosters collaboration and encourages long-term partnerships. It allows small businesses to invest in research and development, expand production capacity, strengthen their market position, build resilience, and foster sustainable supply chain practices.

Identify opportunities for manufacturers to innovate and optimize their supply chain financing strategies to stay competitive in a rapidly evolving landscape.

To innovate and optimise supply chain financing, manufacturers must first gain a detailed understanding of their cash flows, addressing both outflows and inflows. Automating finance functions to analyse payables and receivables cycles is pivotal in this process. By optimising these cycles, businesses can align cash outflows with inflows, reducing the need for reactive financing. Proactive financial management becomes possible through accurate forecasting, enabling timely interventions when cash flow mismatches arise. Manufacturers embracing automation typically experience significant profit increases, often ranging from 10-30%, while achieving impressive yearly growth rates of 25-35%. This underscores the transformative potential of technology-driven finance optimization in navigating the complexities of a rapidly evolving landscape.

What has been the growth % in the last 1 year of your organisation? How has the company expanded in terms of number of clients in metro and non-metro cities?

Since the pandemic, KredX has experienced a remarkable 80% surge in revenue growth, alongside a notable 40% increase in our client base over the past two years. Established in 2015, KredX has been dedicated to popularising financing, consistently expanding our services to encompass underserved sectors. Our adaptable ticket sizes enable us to cater to businesses of all sizes, from large corporations to small enterprises. Expanding our reach beyond metropolitan hubs, KredX has ventured into tier 2 and 3 cities, aggressively offering supply chain financing solutions. Currently, 25% of our clients are based out of non-metro cities reflecting our commitment to reaching and empowering a broader spectrum of businesses. Moving forward, we remain steadfast in our pursuit of expanding our customer base and serving the underserved segment, reaffirming our position as a leading facilitator of financial inclusivity and growth in the evolving landscape of supply chain financing.

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