The pandemic and Brexit are driving a long-needed supply chain technology renaissance – here’s how treasurers should prepare

19 August 2021

Mirka SkrzypczakHead of Working Capital & Trade Products, NatWest

View bio

Rowan AustinHead of Trade Origination & Advisory, Corporates & Institutions, NatWest Group

View bio

Other insights

View more insights

Key takeaways:

  • The pandemic and Brexit have changed how corporates think about supply chains and reinvigorated treasury digitalisation plans: better agility and more resilience are but two of the key benefits businesses are seeking.
  • Addressing new risks and customer requirements starts with end-to-end visibility: greater visibility of the entire supply chain starts with better data, made possible through a range of new technologies and platforms.
  • Digitalisation can clearly help improve risk management and responsiveness: it can also bring a wealth of benefits including improved access to cost-competitive funding, more financial flexibility, better regulatory compliance and security.

Supply chain management and finance has long needed a technology overhaul, but many businesses have been slow or unwilling to invest in recent years. Scepticism among supply chain managers and treasurers is partly responsible – in fairness, many innovations have promised to ‘revolutionise’ supply chains but fell far short of their potential or created as many problems as they solved. Larger, more bureaucratic firms can make implementing new technologies seem like a Sisyphean task.

But this inertia is also a symptom of corporate mindsets around supply chains more broadly – one that fixates on cost at the expense of everything else.

As a result, tools and techniques for everything from supplier onboarding to invoicing to financing, no matter how inefficient or clunky, are for many businesses preferable to pursuing technological solutions that promise to solve supply chain woes, only to arrive at costly dead-ends.

From cost to resilience: Brexit and the pandemic are driving big changes in how businesses think about supply chains

After facing Brexit and the coronavirus pandemic, we may have reached a turning point. Despite a UK-EU trade deal having been agreed, many businesses have struggled to adapt their supply chains to a complex web of new rules and bureaucratic hurdles, which has already led to a big dip in trade between the two regions. As the UK government phases in border controls on imports of goods from the EU, UK businesses heavily reliant on EU imports also need to beware of further disruption – and will need to prepare.

The coronavirus pandemic has dramatically disrupted global trade, first as a series of lockdowns spread unevenly across regions, and more recently as a result of supply chain bottlenecks caused by pent-up demand. About 94% of Fortune 1000 companies say they have seen supply chain disruptions as a result of the pandemic, according to Accenture, with 75% reporting a negative or strongly negative impact on their business as a result.

Both the pandemic and Brexit have shown how the increasing complexity of trade regulation and fast-changing international public health rules can lead to lost income and lower agility for businesses, especially for those that lacked visibility across their supply chains. That is partly why we see both shocks bringing about a big (and we think healthy) change in mindset among a growing number of our clients: a greater focus on supply chain resilience – and with that, digitalisation, to plug important data gaps and cast new light on vulnerabilities lurking in the shadows.

Digitalisation is no panacea. But Brexit, and perhaps more acutely the coronavirus pandemic, have shown how digitalisation across business functions can lead to greater resilience. A recent survey published by Euler Hermes, a credit insurance provider, shows that highly digitised businesses were more proactive at mitigating supply chain disruption than less digitised firms during the first few months of the pandemic – for instance, by hedging through insurance, engaging with lenders, or stockpiling inventory. They were also more likely to say they were improving their understanding of supply chains and increasing their due diligence of suppliers.

Addressing risks and new requirements for customers: start with good data and end-to-end visibility

Amidst a wave of unprecedented tech innovation, businesses have more opportunities than ever before to address risk and drive new efficiencies through digitalisation and better use of data. Real-time data, or near real-time data to support everything from order placement to financing is a goal long pursued by supply chain managers. But in a post-pandemic, post-Brexit environment, it has clearly taken on new urgency as businesses look to increase transparency and get better at detecting, identifying, and understanding potentially critical disruptions; cater to changing customer preferences; and address sustainability risks:

  • Scenario planning from end-to-end: more than ever, businesses need to understand how disruptions to the legal or operating environment could affect their suppliers – and suppliers’ suppliers – and proactively determine alternative sources for goods and cost-effective contingencies. This is driving many to embrace new dynamic modelling platforms that put artificial intelligence (AI) to work anticipating future supply chain disruptions.
  • Everything on demand: what customers expect of companies is shifting at an accelerated rate – ever more so in the past year as working from home became reality for most. Everything ‘on demand’ is quickly becoming the norm, driving more shops online and requiring them to embrace a digital-first mindset that prioritises scalability across the business.
  • Customisation and granularisation becoming the norm: in some sectors more than others, customers are demanding more individualisation and customisation – driving constant inventory changes that require far more transparency and granular tracking (including in some cases LIDAR and RFID technology) across the entire supply chain, from source material ordering and inventory management to logistics and end-product delivery.
  • Managing environmental, social and governance (ESG) risks and prioritising sustainability: as we’ve written previously, businesses must contend with a wide range of ESG risks as customers, regulators, investors, and the public increasingly expect them and their suppliers to adhere to social responsibility principles. And with 80% of a company’s emissions coming from its supply chain rather than direct operations, all businesses and their suppliers are increasingly expected to contribute to decarbonisation and climate change mitigation. This is driving businesses towards more proactive engagement with suppliers, better end-to-end mapping of the supply chain, greater tracking of the regulatory environment where suppliers operate, and pushing them to gain deeper knowledge of each supplier’s ESG risk profile including carbon emissions and the like.

There are a wide range of platforms and technologies that can help businesses address new risks and cater to shifting customer requirements, but crucially, most are underpinned by the same thing: good data and robust end-to-end supply chain visibility enabled by digitalisation.

Trade & supply chain finance is playing an important role in this tech renaissance

Digitalisation can clearly help improve risk management and responsiveness. It can also bring a wealth of benefits to the finance function – and by extension the boardroom – including improved access to cost-competitive funding, more financial flexibility, better regulatory compliance and security. Treasurers should consider how:

  • Digital onboarding is helping businesses adapt to new regulations, speed up processing times and broaden funding access: manual supplier onboarding – the status quo for many – is increasingly weighing on businesses as regulatory requirements force them to collect an ever-increasing stock of records on suppliers. Digital onboarding is essential for businesses if they are to adapt to ongoing changes in the regulatory environment. But it can also help suppliers broaden access to funding through improved data collection and greater transparency.
  • Multi-bank financing platforms is making funding more accessible and scalable: traditional trade or SCF offerings have historically been limited to larger firms and the process of obtaining financing – usually bilaterally with lenders – often cumbersome and admin-heavy. New digital-first multi-bank financing platforms like the Marco Polo Network or Komgo are helping businesses access a wider range of lenders and optimise their working capital more efficiently.
  • Digitisation in combination with “smart contracts”, enabled by blockchain, is making trade finance more efficient and secure: trade finance is still overwhelmingly paper-based, which causes a drag across the entire spectrum of funding activities – from credit through to payment guarantees and insurance. On top of the cost and time required to prepare, transmit and check these documents, this also leave businesses exposed to human error and even fraud. The rise of blockchain technology among banks and funding consortiums has led to the emergence of “smart contracts” in trade finance, digital agreements that contain and automate the execution of terms and conditions agreed by transaction participants. These smart contracts help reduce the cost of gathering and processing information, drafting and negotiating contract terms, monitoring and enforcing agreements – and help make trade more secure and transparent. Thought nascent and not without its challenges – many legal systems still only recognise the status of paper documents in international trade – smart contracts provide a clear sense of the direction of travel for banks, businesses, and regulators.

Prudence, planning, and proactivity: treasurers need to prepare

Brexit and the pandemic have shown that treasurers simply can’t afford to confront new risks and customer requirements on the back foot. The tech renaissance currently taking shape has shown that the tools are there, and constantly evolving in favour of greater efficiency, better security, and lower cost. But it can take months, if not years, to properly digitalise supply chains and related financial operations. It will take prudence, planning and proactivity to make sure businesses can take advantage and avoid costly dead-ends.

To explore how digitalisation can help address new risks and cater to evolving customer requirements, speak with your NatWest Corporates & Institutions representative or contact us here.

Digitalisation


This article has been prepared for information purposes only, does not constitute an analysis of all potentially material issues and is subject to change at any time without prior notice. NatWest Markets does not undertake to update you of such changes.  It is indicative only and is not binding. Other than as indicated, this article has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty, undertaking or assurance of any kind, express or implied, is made as to the adequacy, accuracy, completeness or reasonableness of the information contained in this article, nor does NatWest Markets accept any obligation to any recipient to update or correct any information contained herein. Views expressed herein are not intended to be and should not be viewed as advice or as a personal recommendation. The views expressed herein may not be objective or independent of the interests of the authors or other NatWest Markets trading desks, who may be active participants in the markets, investments or strategies referred to in this article. NatWest Markets will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser; nor does NatWest Markets owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on NatWest Markets for investment advice or recommendations of any sort. You should make your own independent evaluation of the relevance and adequacy of the information contained in this article and any issues that are of concern to you.

This article does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any investment, nor does it constitute an offer to provide any products or services that are capable of acceptance to form a contract. NatWest Markets and each of its respective affiliates accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this material or reliance on the information contained herein. However this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.

NatWest Markets Plc. Incorporated and registered in Scotland No. 90312 with limited liability. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. NatWest Markets N.V. is incorporated with limited liability in the Netherlands, authorised and regulated by De Nederlandsche Bank and the Autoriteit Financiële Markten. It has its seat at Amsterdam, the Netherlands, and is registered in the Commercial Register under number 33002587. Registered Office: Claude Debussylaan 94, Amsterdam, the Netherlands. Branch Reg No. in England BR001029. NatWest Markets Plc is, in certain jurisdictions, an authorised agent of NatWest Markets N.V. and NatWest Markets N.V. is, in certain jurisdictions, an authorised agent of NatWest Markets Plc. NatWest Markets Securities Japan Limited [Kanto Financial Bureau (Kin-sho) No. 202] is authorised and regulated by the Japan Financial Services Agency. Securities business in the United States is conducted through NatWest Markets Securities Inc., a FINRA registered broker-dealer (http://www.finra.org), a SIPC member (www.sipc.org) and a wholly owned indirect subsidiary of NatWest Markets Plc.

Copyright 2021 © NatWest Markets Plc. All rights reserved.