Financial Considerations for Rethinking Your Supply Chain

Learn how good financial habits can help you boost supply chain resiliency. 

Key takeaways:

• Ongoing geopolitical, economic and trade uncertainty has spurred many businesses to rethink their supply chain management and devise new, cost-efficient strategies. 

• As you optimize your supply chain, keep cash flow — and risk management — top of mind. 

• Keeping capital on hand helps ensure you have the resources you need to pivot when you need to — and set yourself up to achieve your goals.

Between ongoing trade disputes, geopolitical conflicts impacting global supply routes and a shifting economic climate, business owners certainly have a full plate when it comes to financial management. 

But thankfully, your business may be more prepared for these shifts than you think. 

“During the first Trump presidency, we saw a significant push for ‘Made in America’ goods, and many companies began sourcing domestic suppliers, bringing their manufacturing stateside, or at the very least, diversifying their overall vendor base,” explains Mark Worthy, Executive Director of Middle Market Banking. “However, with the ongoing discussions around trade policies and tariffs, now’s a good time to revisit your supply chain strategy to make sure it’s still meeting your needs.”

But doing this well requires both evaluating your supply chain and bolstering your business’s financial well-being, so you have the resources you need to reach your goals. Read on for six steps to reimagine your supply chain and position your business for success. 

Start with an honest assessment of your supply chain

Ultimately, each business — and each supply chain — is unique. That means there’s no one-size-fits-all path to resiliency, and your next best step relies on your most pressing pain points now.

However, Worthy notes that most businesses benefit by gauging the level of diversification across their supply chain. Concentrating vendors in one or two markets — especially those likely to be most affected by tariffs — adds risk to the business, since the addition of tariffs could increase most (or all) of your supply costs. 

“We’re seeing more and more companies seek out a globally diverse slate of vendors to help reduce the risk of disruptions,” Worthy explains. “That’s not always possible — sometimes, you need specialized equipment you can only get from one or two markets — but we’re looking for at least a moderate level of diversification in a financially healthy business.”

Complete a cash flow analysis

Along with assessing your supply chain, take a close look at your cash flow to gauge your business’s financial health.

Worthy recommends putting together a 13-week rolling cash flow — the cash flow over your last 13 weeks, updated weekly — to determine how well you’re currently managing your cash flow, and how much financial pressure you can withstand.

“Sourcing new inventory might come with added costs, and analyzing your cash flow helps you understand how much you can afford,” he explains. “Rolling cash flow offers a pulse check into the health of your receivables and payables, so you can correct weakening cash flow before it becomes a problem.”

Define your goals and identify your top priorities

With a strong understanding of your business’ financial strength and the level of diversification across your existing supply chain, you should have a general idea of what you need to do next.

Dynamic trade policies don’t always mean you should rethink your supply chain — and if you determine yours is already highly diversified, you may be able to breathe a sigh of relief. If there’s room for improvement, though, identify which vendors may pose the biggest risk to the financial health of your business, then craft a plan to adapt accordingly. 

For cash flow, identify the biggest bottlenecks and the most significant risk factors that may impact your cash management. From there, you can start crafting contingency plans for the highest priority risks to help set yourself up for success.

Weigh the financial pros and cons of domestic operations

Sourcing domestic suppliers or establishing manufacturing capabilities in the U.S. helps mitigate the risk that tariffs may pose to your financial health. But it also comes with higher labor costs, which may impact your financial strategy.

Worthy recommends making a strategic decision with a comprehensive look at the financial pros and cons of nearshoring, or bringing more operations stateside. Reduced shipping costs and access to government grants or tax incentives may help partially offset the increased labor costs of domestic manufacturing, he notes. And customers may be willing to pay a premium for goods made in the U.S. — particularly consumer goods like housewares or apparel.

By forecasting the true impact of nearshoring on your business’ finances, you can more easily understand your options and identify the right course of action, as well as plan for the challenges you’re likely to experience as a result of your choice. 

Get creative during negotiations with your suppliers

You’re not alone in feeling the pinch of trade uncertainty: Your suppliers are feeling it, too. That means suppliers may be amenable to extending more favorable terms. 

Consider asking suppliers for payment terms that allow you to pay when goods are sold, rather than when they’re received, to help you weather potential fluctuations in demand. Or negotiate longer payment terms, in general, to help you manage your cash flow.

Ensuring you have adequate access to capital can help power your negotiations, Worthy says. “Capital can often help you unlock greater financial opportunities, such as securing discounts from suppliers by paying upfront, or scoring volume discounts for supplies you know you’ll need.” 

Crucially, capital can also provide a cash buffer to help you manage your cash flow. So even if your supply costs increase — or the cost of importing supplies rises — you’re more likely to have the cash you need to make your next move. 

Work with a commercial banking expert to support your financial success

Supply chain management is only one aspect of managing your company's finances, but it can have a significant impact on your overall financial health. That’s why Worthy recommends having a holistic conversation with your banker on multiple aspects of your company: From cash flow to liquidity, capital management and more.

“The more information we have about your business’ needs and priorities, the more opportunities we have to support you,” he explains. “If we know you’re planning to nearshore more of your operations, for example, we can connect you to the financial products, services and insights you need to make it happen.”

Northwest Bank’s team of commercial banking experts is here to help you each step of the way — whether you’re looking for help weighing your options, need support refining your strategy or you’re interested in financial products or services to help you reach your goals. 

When you’re ready, we're here to help you move your business forward. Reach out to one of our commercial banking experts to discuss how we can help you turn your vision into reality.