Reevaluating supply chain risk
The widespread impact of the COVID-19 pandemic, along with the ongoing threat of the virus, are driving companies to reevaluate their supply chain risk. Generally, complex global supply chains have been tuned for cost and speed, but COVID-19 has revealed their brittleness.
In their path to recovery, trade organizations will likely experience three different phases:
- Protecting existing activities
- Rebooting their supply chains
- Operational transformation
In this extreme business environment, executives have realized that while their own supplier base may be diverse in terms of geography and size, there may be unknown concentration risks further down the chain. As a result, they are bound to look beyond their own supply chains and focus on supplier visibility to truly understand their risks in the new normal.
As corporates look for ways to better balance costs – and increase efficiency, speed and operational resilience – they may look at various options such as onshoring or re-shoring part of their production. Additionally, they may rethink their inventory-stocking strategy to improve resilience in case of further short-term, localized lockdowns.
How corporates will orchestrate their global supply chains, with lockdowns easing in different phases and horizons, will be crucial to operational resilience.
To achieve these long-term improvements, their immediate focus will be on digitalizing their supply chains from end to end, and increasing visibility through user-friendly dashboards that can provide real-time data on inventory, supply and demand. Crucially, they will need the support of innovative trade finance solutions that can adapt and connect to such new digital approaches.
The future is digital: what trade finance can expect next
Many global trade finance banks have already started to invest in digitalization, with technologies such as optical character recognition (OCR), artificial intelligence and blockchain being used to develop innumerable use cases and proofs of concept. Now, lockdowns have resulted in a dramatic step up in corporate digital adoption: transactions that were always done face to face are now suddenly done electronically. This is set to continue beyond the crisis, leading to questions over traditional paper processes, and propelling trade’s digital transformation over the coming months and beyond.
The crisis has led to renewed energy around taking out paper, going beyond OCR, and fully digitalizing origination.
Once the threat of the pandemic begins to dwindle, end-to-end supply chain visibility and digital interoperability will become much higher priorities for companies, forcing banks to accelerate the digital transformation of trade finance. In turn, by addressing roadblocks such as data automation, deep-tier supplier financing and digital silos, trade finance has the potential to unlock new opportunities, particularly around e-commerce and marketplace procurement, as well as sustainable trade.
All this means that despite the initial slowdown, the economic consequences are likely to make trade finance more relevant than ever. In fact, 45% of attendees believe that the pandemic has upended their business priorities, with more organizations now focusing on workforce size, skills and location, along with capital efficiency, cost management and customer engagement.
Nonetheless, the deep transformation likely to take place in global supply chains will require banks to increase their digitalization efforts and make end-to-end connectivity a reality.
Summary
Despite the global economic impact and supply chain disruption, the demand for trade finance will return – but banks will miss crucial opportunities unless they prioritize end-to-end digitalization.
