Tigers are usually solitary nocturnal creatures that continuously patrol their territory looking for prey – but they also protect their territory from others that might threaten their existence.
And while I wouldn’t recommend treasurers prowl tropical forests in the middle of the night, there are some insights from tiger behaviour that are worth attempting to emulate.
It is increasingly apparent that treasurers need to be more aware than ever of the changing landscape of our supply chains in ways that many would never have expected.
So it follows that treasurers are becoming far more influential in large corporates, since their roles become more crucial at a time when liquidity becomes more volatile.
This means that treasurers need to be far more proactive in spotting risks to their businesses: they must have an armoury of weapons to deal with potentially difficult situations that can arise with terrifying speed.
The global supply chain is now so integrated that it is much more likely that a butterfly flapping its wings in Indonesia will cause a tsunami on the other side of the planet.
For example, in a recent conversation about the coffee industry, it was pointed out to me that because of the war in Ukraine, shipments of Russian fertiliser and potash were not getting through to Brazil.
Russia accounts for nearly 30% of fertiliser imports to Brazil. These products are required during the coffee-planting season and without them, the coffee crop will likely be diminished from this country for several years to come due to a series of seemingly unconnected events.
In another example, it turns out that 60% of the world’s neon gas is made by one company based in Odesa in Ukraine. Without this gas, the lasers that are used to etch the circuits on semiconductors will not work.
Treasurers need to be far more proactive in spotting risks… they must have an armoury of weapons to deal with potentially difficult situations
It looks likely that microchip shortages might continue for longer than we expected. Also, not surprisingly, the price of neon gas jumped by 600% in the first week of the Russian invasion.
And what might happen next? We simply do not know.
Despite these challenges, it is not time to throw up our hands in despair. Many things can be done to mitigate these risks.
Traditionally, treasurers have spoken to their banking partners to maximise the lending facilities they have to draw on.
While this is still a valid strategy, it is getting harder to get banks to realise more liquidity in an environment where they have to hold more reserves to comply with banking regulations, while they are afraid of overexposing themselves to market risks.
In some cases, merely asking for extended facilities is a matter of suspicion in itself.
The next area to tap is working capital.
This is more difficult for treasurers, since they do not have direct responsibility for the parts of the business that determine the levels of accounts receivables, accounts payables and inventory.
But again, that doesn’t mean they’re powerless. Treasurers have two great advantages in the area of working capital:
A lot of money has been spent on treasury management systems and working capital reporting in recent years, and that means treasurers should have their finger on the pulse of cash in the organisation.
And given that more and more organisations are centralising treasury processes with the use of in-house banks and intercompany clearing, treasurers can now see the real effects of working capital management on a daily basis.
CFOs are always nervous about what might be around the corner, and treasurers are the people that can most effectively communicate the impacts of changes in the working capital profile to the people who are responsible for steering the corporate ship through the storm of uncertainty.
More and more working capital programmes are being initiated and managed via treasury, and this trend is likely to continue.
Treasurers have become a bigger influence in the business at the very point that:
One area that has always been key in the management of supply chain risk is procurement.
Many treasurers can feel quite distant from procurement activities, but there is a real necessity to generate a level of symbiosis between the treasury and procurement functions.
Procurement departments are usually not very well trained in financial areas around payment term management, accounts payable efficiencies and payment mechanisms with suppliers such as supply chain finance (SCF).
Education and coaching are required so that procurement understands the impact of their actions on corporate liquidity, how they can help with accounts payable operations and how to use payment mechanisms to help secure the supply chain.
One of the best examples in recent years is the use of SCF. On the surface, SCF is a simple mechanism to allow a supplier to be paid early while the corporate buyer can maximise their working capital balance.
There is ample evidence that suppliers who sign up for such programmes can also prosper by having additional working capital to fund their own businesses and, as a result, want to increase their business with their customer.
This has the effect of binding the supplier to the supply chain, and in times where there are shortages of products and resources, it makes it much more likely that your company will be supplied versus the opposition.
These schemes can prove to be a significant competitive advantage in times of economic turbulence. Treasurers are the key to success in these areas, since they will be some of the few people who can explain how all this can work for procurement.
Additionally, treasury can also help procurement to understand the risk in their spend portfolio. As technology and centralisation have crept into all our processes in recent decades, it is increasingly common that buyers do not know where their products and services are being sourced from.
In a recent example, a client was working with a Belgian software company based near Antwerp. That doesn’t sound very risky until you understand that they use several subcontractors based in Kyiv.
While this didn’t ultimately impact service delivery, procurement had not understood the geographical link. This is a common error in many fields of procurement and treasurers need to take the time to educate their colleagues to look out for these kinds of risks.
This is why treasurers need to understand their inner tiger. Understand what is going on across your company, understand how you can influence decision-makers and educate your colleagues about how their actions influence liquidity.
If you go into the woods today, please don’t be in for a big surprise.
Accenture recently published its action plan for businesses facing supply chain disruption. Here are the key points:
Brian Shanahan is the leader and founder of working capital consultancy Informita
This article was taken from Issue 2, 2022 of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership
