With the global economy reeling from what feels like some planet-wide medical disaster film – think 2011’s Contagion, or if you’re from an older generation: 1995’s Outbreak, or The Andromeda Strain from 1971 – talk has increasingly centered on supply chain risks.
Accordingly, a supply chain is: “a network between a company and its suppliers to produce and distribute a specific product to the final buyer. This network includes different activities, people, entities, information, and resources. The supply chain also represents the steps it takes to get the product or service from its original state to the customer.” The supply chain includes customers abroad as well via local retailers or shipments to international destinations. In simple terms: the supply chain consists of all components necessary to get your product/s built and to market.
For small and medium-sized US businesses (250 employees or less), doing business overseas product risks could be severe. Why? Because too often the CEOs or product fulfillment managers of these businesses fail to manage their currency transactions in real-time and integrate that awareness into their business practices when times are good, let alone when they aren’t.
Vaccinate Your Business From Global Volatility
The result is an economic ripple effect caused by a growing liquidity crisis as bills come due on past orders from products made and shipped overseas. Add to that a drop in business locally means short-term revenue loss as the national economy grinds to a halt. Paying those bills on time and without penalty will require dipping into savings or borrowing from banks. Even as the federal government irons out an emergency aid package, many small business owners and their CEOs fear the buck (or bucks) will stop at them.
Thus, the key factors to “vaccinate” your business from future product procurement issues are four-fold:
- Review where and in what quantities your overseas products are made. Can these product production points be diversified further? Or, related, is there an alternative resource you can acquire from somewhere else that would not profoundly alter the product/s you sell?
- Have a better real-time awareness of the changing values of the currencies you deal with, as well as an instant knowledge when to lock in bulk rates to maximize dollar gain. For instance, even before COVID-19 entered the global stage, the value of the Chinese yuan was in freefall. A recent seven-week high against the dollar eroded as risk aversion spread almost as fast as the virus itself.
- Can you add new products and new product production pipelines in areas less impacted by the coronavirus so that your business can diversify what it sells and to who – without incurring unneeded expense and without diluting what your brand stands for?
- As China and South Asian markets begin a slow recovery and customers return, are their new markets for you to explore?
Inoculation Against Fear with Facts
So now that we’ve laid out the questions that must be asked, the next task is answering them. One of the best ways to do that is by integrating the latest software solutions that can help track some of these metrics in real-time, allowing CEOs and their executive team to make swift and agile decisions that ultimately save money.
Companies would be wise to research and invest in organized, holistic, integrated approaches to international financial transactions and payment management, including receivables and payables. Specifically, you’d be looking for CRM-like control that allows for international payments, sets up bill alerts based on due dates and exchange rates, accesses a currency rate calculator, uses multiple currency providers at once, and connects with existing customer relationship platforms. QuickBooks and e-commerce integration is also vital. Taken in whole these measures will help reduce volatility while safeguarding profit margins.
Right now, and for the next few months, the primary source of that volatility will be the coronavirus’ continuing spread. Nonetheless, China is the “world’s factory,” generating over $560 billion worth of goods came into the US in 2018 alone. In eleven categories listed below, Chinese imports totaled nearly 100 percent of each product market.
- Baby carriages and strollers
- Cooking appliances and warmers
- Electric blankets
- Garden umbrellas
- Non-plastic faux flowers
- Plastic artificial flowers
- Portable radios and tape recorders
- Telescoping umbrellas
- Video game consoles
It’s an unfortunate reality, yes, but not impossible. Armed with facts, not fear, it’s critical to remember that:
- the fundamentals of the US economy are sound,
- COVID-19 is not a civilization-ending event (it is a virus from the familiar family of viruses that causes the common cold), and
- Commonsense basic hygiene and enhanced social distancing have already turned the tide of the Chinese outbreak.
Likewise, as the US mounts an unprecedented national response, we can be confident that
like Contagion and Outbreak, and The Andromeda Strain, the
virus will be stopped.
And, once it has, you can bet pent-up demand will be robust!