Andreas Radke

Director Value Evolution Service Practice Lead


7 min Reading Time ∙

Financial Instability Rocks the Banking Sector and Sends Shockwaves Towards Supply Chains: Are You Prepared?

The economy is entering a new period and supply chains may be in for a return to focus on cash flow and working capital.

This week, the financial world has been on edge due to news about the bankruptcy of Silicon Valley Bank and other regional banks and the turbulence at Swiss major bank Credit Suisse. There are growing fears of a new global financial crisis. Regarding the impact of supply chain, it is possible that the bankruptcy and turbulence mentioned in the news could have a ripple effect on your supply chain transformation too. The economy is shifting, so far only in financial institutions, but soon also in the real economy. Then, your SCM digitalization projects will get queried by your CFO about their short-term financial benefits. (see more details Appendix 1)

Your CFO’s job, which is making sure customers pay on time, everybody gets paid on time, and the differential between cash in and cash out is bridged by credit, will be becoming much harder. Securing that credit has become much more expensive to get and is likely going to become more expensive, yet, either through more rate hikes or through more trouble in financial institutions.

Yet, you can take steps today to keep your digital journey on track by finding the hidden opportunities in your supply chain:

  1. Increase the cash flow by boosting cash in while slashing cash out, and
  2. Streamlining the purchase-to-pay process, because the duration and the need for iterations (orchestration) to complete it, determines the cash flow differential and thus the amount of credit your CFO needs to get. (see more details Appendix 2)


Let’s, first, revisit the “classic” supply chain strategies  to increase cash flow and reduce working capital requirements:

  • Efficient inventory management: Maintaining optimal inventory levels is essential to ensure that your company has enough stock to meet customer demand while minimizing holding costs. This can be achieved through better forecasting and demand planning, improving supplier lead times, and implementing just-in-time (JIT) inventory management.
  • Streamlined procurement processes: By improving supplier relationships and negotiating better payment terms, you can improve cash flow by reducing the time between paying for goods and services and receiving payment from your customers.
  • Effective accounts receivable management: You can improve cash flow by collecting payments from customers faster. This can be achieved through timely invoicing, offering early payment discounts, and implementing automated payment processing systems.
  • Efficient logistics and transportation management: Re-shoring or nearshoring your supplier base, and optimizing transportation and logistics can reduce lead times, minimize transportation costs, and improve delivery times, which can in turn reduce the need for excess inventory and improve cash flow.
  • Collaboration and communication with suppliers: Building strong relationships with your suppliers and working closely with them can improve supply chain visibility, reduce lead times, and increase efficiency, which can lead to lower costs and better cash flow.


Second, go for the root cause of the symptoms. Throughout these five classic strategies is woven a common underlying thread: your end-to-end business process. From a senior level, examine how your organization is executing the business process reengineering end-to-end and ask them critical questions:

  • Are our lean six sigma projects to reduce waste and deviations in the business process on track? What is their timeline? Are we running them agile to avoid overloading the organization?
  • Do we know that we’re looking at the actual business process or are we looking at a process map that doesn’t reflect the “tribal processes”? How would we know one from the other? And are we looking at the way our people are (or aren’t) using the IT systems too?
  • Are our LSS champions driving projects within functional domains or also at the departmental intersections and interfaces? Are the interfaces to our supply chain partners covered too?
  • How can we get the leadership on board to get the mandate for cross-functional improvements?
  • Which expertise and experience do we have internally? Which ones do we need to bring in externally? And are we paying external partners for the change they deliver and not for slides?

With the combination of classic supply chain strategies to increase cash flow, and business process reengineering to reduce time and waste, and thus working capital, you will be able to create a constant stream of savings to keep the digital journey on the road. But you need to start now, before your CFO talks about how hard his/her job has become.


Appendix 1: Why did we lose focus on cash flow and working capital?
Since the collapse of Silicon Valley Bank, you have noticed that something is going on in the world of financial institutions. To be clear, one of America’s top 20 banks (as well as 2 other financial institutions in the same week) wasn’t caused by the Federal Reserve Bank’s interest rate hikes but mismanagement and regulatory loopholes. So, once the Fed had bailed out SVB’s clients, though not its shareholders and management, financial markets duly rebounded. But now banks in Europe with similar management struggles (and possibly less regulatory loopholes) led by Credit Suisse but with concerns about banks in the EU too, come under the scrutiny of investors. It thus seems premature to return to business as “usual” – if the “polycrisis”, as the World Economic Forum describes the onslaught of external shocks to supply chains since 2020  , can be called that way.

What has crept up on us like a shadow in the night though is a tightening of money supply by any macro-economic measure since November 2022 – a first in 35 years – and not just in the US. So, the liquidity flood which started before the Great Recession of 2007 is showing signs of receding even though it is starting from a very, very high level. Nevertheless, the latest Purchasing Manager Index (PMI) indicates that big ticket investments are in decline. To borrow from Warren Buffet: ”You don’t find out who’s been swimming naked until the tide goes out”. This is now, but the quote is from 1994, and here the time travel begins.

Back in those days, working capital and cash flow were de rigueur and de facto the performance metrics by which your supply chain career rose and fell. But things changed fundamentally and for good reasons consensus emerged in the board rooms that, first, offshoring production reduced working capital requirements despite extended transportation times, and then, in the aftermath of the Great Recession, credit was so cheap you could spend.
Around late 1990s, the ability to offshore production from high-cost countries to low-cost countries reduced ex-factory costs to a fraction, demand was consistently growing (one effect of the so-called “peace dividend” after the Cold War), and with production systems shifting towards mass customization, long transportation times from East Asia to the US and Europe were acceptable for all but a few product categories. Then came the Great Recession and central banks across the globe (with substantial help by the People’s Bank of China – yes, those were the days!) slashed interest rates to a zero or below that and held them there . Then came covid-19 and, administrations across the globe did everything possible and necessary to avoid economic meltdown including buying billions of dollars of bonds every month to stimulate the economy until as early as Q1 2022.

So, although it didn’t feel that way so far, compared to what’s on the horizon, spending on your SCM digitalization projects was readily available because the cost of capital was so small that it was a negligible factor in your return on investment or net present value calculations. Each project was competing based on its benefits and effort alone but now you will find that funding for ambitious, long-term (or even medium-term) transformation projects becomes harder.
In short, after some 30-odd years of other priorities you may find that quite a bit of opportunity for cash flow increase and working capital decrease has entered your supply chain.


Appendix 2: Why the Purchase-to-pay Process Drives Working Capital Requirements
The duration it takes to fulfil customer orders from end to end, that is the purchase-to-pay process, the earlier you need to pay for supplies and the later customers will pay you creating a big differential in the cash flow. If in addition, customer orders require iterations along the way, the purchase-to-pay processing time becomes variable, and your CFO will need to buffer that with cash reserves which mean more credit needs to be secured.





Andreas Radke

Director Value Evolution Service Practice Lead