New Market Dynamics Require New Thinking

 

Businesses in the world of global trade have been on pins and needles for the past year as the threat of trade wars has escalated. And while leaders grapple with ongoing global economic uncertainty, they’re also facing everyday issues. As the World Economic Forum (WEF) notes, “…On a strategic level, middle market businesses often need help to determine how to maintain profitable growth while keeping pace with changing market conditions and customer demands.” All of this puts pressure on leaders to find innovative ways to gain speed, traction, and greater cost efficiencies to remain competitive.

Leading the charge in pursuit of new ways to drive growth and strategy is, typically, the Chief Financial Officer (CFO). Responsible for evaluating how to mitigate risk, CFOs are also seeking ways to spark or support transformation. According to Accenture, “78% of CFOs are heading up efforts to improve efficiency through adoption of digital technology.” For financial chiefs of companies that move goods across the world, taking a closer look at optimizing the freight forwarding process offers ample opportunity.

This page will explore how taking a deeper look at supply chain management, freight forwarding, and trade finance opportunities — with an eye toward digital transformation — can create greater visibility and cost efficiencies. And in the process, unlock working capital to sustain and accelerate growth.

 

No Mid-Sized Business Left Behind

 

Even beyond the on-again, off-again trade wars, other conditions can come into play without warning: fluctuating interest rates, power and energy considerations — not to mention the specter of another NotPetyascale cyberattack. CFOs face complexity on a nearly unprecedented scale.

On top of that, CFOs are challenged with being able to calculate true landed cost of inventory and having a clear line of sight into actual product lifecycle costs — something that can be a painstaking process that takes days or even weeks.

These conditions add up to the need for organizations to have greater visibility and agility than ever before. And, the need to be able to move forward on multiple fronts. But how do you do that while maintaining what is already in place?

One often overlooked area: supply chain operations and the freight forwarding process. By applying the same disciplined, strategic approach to importing as is done with other areas of the business, significant advantages emerge — especially when utilizing digital tools that create greater transparency, efficiency and predictability, which often can translate to cost savings.

 

Technology Shows the New Way Forward

 

It goes without saying that the faster and more productively individuals can perform their jobs, the more they’re able to focus on additional ways to add value to the business. The best way to do that is to enable transparency for greater collaboration. By knocking down silos, information can be shared more easily, which keeps processes moving forward.

To illustrate, Sino Shipping cloud-based, digital freight forwarding platform — part of its Operating System for Global Trade — was designed specifically to eliminate the barriers of the traditional shipping industry. The resulting transparency helps those focused on supply chain and finance better assess overall costs and other business-related economics.

The online platform pulls in data from each party involved in the process, along with real-time updates of each shipment, from initial placement of order to final arrival at destination. Importers, exporters, trucking companies, ocean carriers, airlines, customs brokers, and port terminals are all connected. As a result, huge efficiencies in time and cost emerge. And, just-in-time adjustments can be made on the fly, as needed, to keep logistics, commercial, and customer expectations on track.

Through Sino Shipping platform, products can be identified within containers (down to the stock number or SKU), efficiently consolidated, reprioritised for shipment based on market demand or inclement weather, switched from ocean to air, rerouted through fewer ports, or sent to different warehouses.

Even more importantly, Sino Shipping platform enables supply chain, operations, or procurement and finance leads to see a line-by-line breakdown of charges on both quotes and invoices, so they can feel confident they know exactly what they’re paying for. Because Sino Shipping displays the details side by side, reconciling invoices can take minutes instead of hours. Plus, within the dashboard, users can take advantage of a landed cost calculator, which factors purchase price per unit, freight cost per unit, and customs duties — a valuable tool for ongoing forecasting and projections.

 

7 Steps to Drive Cost Efficiency in Freight Forwarding and Supply Chain Management

 

1/ Look at cash conversion cycles and understand the gap between purchasing inventory and converting it to profit.

2/ Identify strategic areas that could benefit from greater investment by freeing up capital.

3/Discuss procurement options with supply chain partners, starting with the factory: Check for price breaks with increased inventory, adjustments to shipping schedules, payment schedule flexibility, and other factors.

4/ Research options for where inventory is held — a free-trade zone overseas might be more costeffective than a local warehouse.

5/ Consider how goods are categorized — sometimes products can overlap categories that impose dramatically different costs. For instance, tariffs on backpacks are higher than on hydration packs.

6/ Check geographic locations of suppliers. Knowing if they’re near a port or in a rural setting can make a difference.

7/ Identify specific goals — if the priority is improving margins and lowering costs, ocean will be the best bet, though it will take longer.

This level of insight takes on greater importance as the market evolves. At a time when customers have higher expectations for customer service and lower tolerance for stock-outs, the analytics found in a digital platform can be invaluable for revealing how to shift the balance of supply and demand. When you’re better able to forecast, you have more power to take control and look for those other areas to invest in. A prime example is American Metalcraft, a leading wholesale producer of kitchen and restaurant ware (and maker of the first deep-dish pizza pan). With Sino Shipping, it found a technology-based solution that gave its buying and finance teams more visibility and control over shipments in its supply chain and enabled smarter, quicker decision-making. As a result, American Metalcraft has experienced 10% fewer annual inventory stock-outs.

The company has also benefited from timely financial data to assess the financial health of its supply chain. Says Patrick Lindemann, American Metalcraft’s chief financial officer, “Having invoice data available on the Sino Shipping platform allows us to accurately calculate the product cost across shipments. I can also efficiently reconcile what’s in transit with what’s on my balance sheet. The visibility Sino Shipping provides from a financial standpoint can’t be overstated.

 

Using Changing Dynamics for Business Advantage

 

Given the unpredictability of shifting market conditions, it’s wise to remember that where growth is the name of the game, status quo can’t exist. Since markets never remain static, businesses need to be equipped to fend off potential disruptors that change the laws of order in the market or disrupt the customer service model. CFOs, and those responsible for driving growth should ask themselves, “Is my supply chain and working capital optimized for where the business is, and where it’s heading?”

As demand grows for a company’s products, it needs to make sure its supply chain can still keep pace. Playing into this comes a new set of questions for CFOs:

  • 1) Are your factories prioritizing your business?
  • 2) Are shipping carriers offering the best transportation options?
  • 3) Do you have the right financing in place to optimize your working capital?

These questions can help finance executives avoid carrying all the cost, risk, and burden.

It goes without saying that plotting growth strategy effectively relies on leaders understanding the company’s cash conversion cycle: How long after buying inventory does it take to sell that inventory and collect and convert into profit? If a closer look at lead times and payment terms with suppliers reveals a gap, businesses should look for ways to close it.

 

Finance in the Chinese Freight Forwarding World

 

One way businesses are shortening the cash conversion cycle is by leveraging financing throughout their supply chain, from the moment their inventory is ready to ship. Those that do find that they’re able to put money toward other strategic areas like advertising or research and development. Equally as important, when businesses pay their factories faster — or upfront — and order more goods, they naturally become a higher priority for the manufacturer.

“If your business finds itself with surging demand for products, that’s great. But realize that the factory needs to fund production to meet that demand. You need to make sure the manufacturer has the capacity and their own working capital to keep up,” explains Kevin Cheng, Vice President of Capital at Sino Shipping. “If they can’t grow with you and merchandise is out of stock, your customers will have a poor experience.”

When financing is provided by companies like Sino Shipping, which are in the business of moving international freight, the funding is tailored to the nuances of importing and exporting. That’s an important distinction, given that most banks shy away from financing in-transit inventory — when those funds can be most impactful — because of their sensitivity to risk. When capital is trapped in the supply chain, businesses are less able to pivot and pursue emerging priorities. As Glazer points out, businesses are best served when they don’t tie up capital on something that can be financed.

For instance, when Ridenfun was first achieving success, demand was outpacing its supply chain. This stymied the company’s growth plans, until it was able to secure inventory financing. “Freeing up our cash flow means we can invest in marketing, product development, and business development,” says Hubert, Ridenfun CEO.

 

Conclusion

Technology and Finance: A Powerful Combination

 

At the end of the day, business decisions are driven by profit and growth. While many CFOs might look to sales and marketing as their catalyst for expansion, it is the overlooked supply chain that merits additional focus. By doing so, leaders can turn their importing operations into a true value-driver for the business. Start by taking a close look at the freight forwarding process to identify where capital — financial and human — is getting trapped. Think about how technology like Sino Shipping digital platform can knock down walls to enable stakeholders throughout the global trade experience to work together more effectively.

And, explore how data resulting from that activity can reveal broader insights that can guide ongoing business planning. Finally, consider if business growth is being held back by lack of investment in strategic areas. If so, financing the supply chain and freight forwarding process could be a smart alternative strategy. Whether you’re leading a high-growth-stage business or the CFO of an established enterprise, finding ways to keep the tail winds blowing is essential. Learn more about how an optimized freight forwarding process can work for you by asking a free quote.