Page 15 - Logistics News July 2019

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Opinion

Importing: Managing post-shipment

fi nancial fl ows in supply chains

By Wesley Niemann, wesley.niemann@up.ac.za
A recent study investigated how importers manage their physical supply chain alongside their
fi nancial supply chain to maximise operational functionality.

THE STUDY, conducted by supply chain each supplier, which, in turn, reduces ﬁ xed order
management experts at the University of Pretoria, costs, but increases average inventory levels. The
addressed the speciﬁ c challenges faced by study found that importers are balancing aspects
importers, including the state of the South African of their physical supply chain with their ﬁ nancial
economy, global sourcing strategies, inventory supply chain to manage the local and foreign costs
management, cash ﬂ ow management, working associated with importing.
capital management and post-shipment ﬁ nancial Importers manage their post-shipment ﬁ nancial
supply chain management (FSCM). supply chains to align their local customers’
Importers manage their post-shipment payment terms with their operating and cash
ﬁ nancial supply chain regarding short-term credit ﬂ ow cycles. While the responsibility for cash ﬂ ow
when funding the cost of imports from foreign management lies with the ﬁ nance department,
suppliers. The study noted that importers are the implications thereof aff ect a ﬁ rm’s entire
continuously evaluating both their ﬁ nancial and physical and ﬁ nancial supply chain, and ﬁ rms must
physical supply chains, regardless of their working eff ectively manage their cash ﬂ ow cycle.
capital position. Importers in South Africa are often at the
Importers are addressing aspects of sourcing, mercy of standard trading practices when
exchange rate volatility, inventory holding costs extending terms to local customers and therefore
and working capital management when evaluating cannot reduce accounts receivable. The standard
the ﬁ nancial performance of their supply chains. approach to managing the misalignment between
They use business relationships and purchase the participating ﬁ rms’ operating/cash ﬂ ow cycles
volumes to negotiate pricing and payment terms and their cash receivable is to build ﬁ nancing cost
with foreign suppliers. These arrangements into the margins of the product.
can assist with the ﬁ nancial burden associated The study identiﬁ ed which post-shipment
with the long lead times attributed to global ﬁ nancial supply chain management tools importers
sourcing, although importing ﬁ rms are at risk of are currently using. Debtors ﬁ nance provides
their domestic currency depreciating between importers with access to additional capital at
order placement and the ﬁ nal supplier payment a lower rate than an overdraft, but it does not
due date. The associated reduction in unit price extend their working capital position to align the
from high volume purchases may aff ect a ﬁ rm’s operational and cash ﬂ ow cycle. However, it assists
sourcing strategy, leading them to purchase more. in aligning the operational and cash ﬂ ow cycle.
This results in higher stock holding costs and a When using trade ﬁ nance, the importer receives
possible mismatch with local demand, making funding from a domestic ﬁ nancial services provider
it less attractive to sourcing globally. Although, for the foreign currency value of the invoice. In
eff ectively running the ﬁ nancial alongside the turn, they are provided with repayment terms
physical supply chain, the cost implications can be which match their cash ﬂ ow cycle. Trade ﬁ nance
negated. is identiﬁ ed as a higher cost method, but shows a
Importers can introduce the use of sourcing positive eff ect on a ﬁ rm’s working capital position,
agents, who act as one point of contact to allowing it to align its cash ﬂ ow and operational
reduce ﬁ xed costs, but spread delivery reliability cycle. Through an extended payment term with
risk across a large supplier base. By diversifying clearing agents, ﬁ rms can better align the gap
sourcing, ﬁ rms can shift their order base from created by long lead times and extended payment
a disrupted source to an unaff ected source, terms provided to customers. For importers, the
thereby reducing safety stock requirements and use of a clearing agent is therefore crucial when
required inventory investment. By reducing the managing the post-shipment ﬁ nancial ﬂ ows of
supplier base, a ﬁ rm sources larger volume from their supply chains. •

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