Why is Financial Analysis Important For a Supply Chain Management?

Why is Financial Analysis Important For a Supply Chain Management
July 05, 2022
Author : Celina

Do you know what a supply chain is? Or how financial analysis affects the supply chain? Businesses work with multiple suppliers; they comprise a supply chain for the respective business. Such systems are the backbone of a business. A supply chain keeps the business up and running.

The management of this chain is called supply chain management. Every organisation - from small businesses to huge corporations - uses SMC or a supply chain management system to access, track and modify the supply chain. Originally, SMCs originated in 1990. But, now it is extensively in use through advanced software.

The global supply chain network is on the rise estimating upto an eleven per cent hike - worth thirty-seven billion dollars - between 2020-2027. This surge persists regardless of the pandemic.

This blog reviews the management of such a chain and the added factors that entail the chain’s efficiency. As a management student, you must learn all the ropes in the management and financial sector. Read forth to learn more about supply chain performance measurement and financial analysis.

Why Is Finance Important in Supply Chain Management?

Like the Roman Empire, logistics still rule today's financial and business world. Cross-function integration across the firm comprises an effective supply chain. Businesses often strategise to reduce operational shortcomings and enhance customer satisfaction. Consequently, strategic planning is the key to effective logistics.

Here are four reasons why finance is important for managing a supply chain:

1. Buyers can extend payment terms

With a supply chain, the suppliers offer leeway for the buyers to pay later or deferred payments. Such flexibility especially supports small businesses. It is proven most effective during the pandemic in keeping businesses functioning.

2. Suppliers can control their cash flow

Suppliers depend greatly on their payments in return for the supplies. In a supply chain, the suppliers regulate the cash flow. Hence, they must schedule accordingly if they want to get paid in fifteen days. This way, suppliers get paid faster and grow their business. Adding to the importance of Financial analysis for Supply Chain.

3. Suppliers have access to lower interest rates

Often, the buyers in a supply chain are large organisations with huge working capital. It gives them an upper hand over the supplier when dealing financially. But, a supply chain gives the suppliers access to lower interest rates for fair trading.

4. The buyer-supplier relationship is strengthened

Lastly, the suppliers are an important part of a huge organisation’s business processes. The firms can’t lose the provider regardless of the size of supplies. Thus, maintaining the buyer-supplier relationship is the most effective feature of a supply chain.

The popularity of their party logistics is rising due to same-day delivery demands. This lowers the demand for a supply chain. - McKinsey

The upgrade for a supply chain and financial analysis concerning the SCM is chain finance. Organisations must go through strategic re-evaluation for their supply chain and logistics. This will help formulate a more effective strategy for reducing the risks and shocks per the economic state of the market.

As students, you will come across various case studies regarding SCM if you struggle with finding the right resources for your case study. You may fill out the enrollment form to get supply chain management assignment help from our experts. Access our vast digital library for free and get sample case studies.

How to Enhance Financial Performance Through Supply Chain Management?

For small-to-mid-sized companies, enhancing the current supply chain will help reduce the selling price of the goods. Although lower SP may not be the most favourable for companies, it helps increase business profitability. Improved logistics means reducing the time that manual management requires.

The major concern areas in a supply chain performance measurement and financial analysis for enhancing the financial performance are:

  • Lead time, order delivery time, market demand, and customer satisfaction impact the business revenue. Delivering quality products at the right time to the customers is increasingly important. Hence enhancing the logistics means high revenue.
  • Additionally, improving the transportation management system is the next essential step. Business forecasts accurate shipment and delivery time with streamlined transportation. Such access is essential in SCM and the expenses.
  • Also, the business invests capital in enhancing the supply chain entails proper inventory management, distribution and procurement.
  • Optimising the various business processes that impact the supply chain is essential to reducing the miscellaneous expenses in a supply-demand chain.

Did you know that Shipping alone is a trillion dollars’ worth of industry? The major earning prospect is the same-day delivery feature.

Improving the supply chain improves operational efficiency and generates high productivity. Businesses need to improve the supply chain to reduce expenses and improve the company’s financial health. Financial analysis for Supply Chain is also useful for maintaining a buffer time between the demand and supply.

What Resolution Measures for Supply Chain Crises?

The disparity in the major supply chains made the global supply chain spiral into a crisis. Hence, this has negatively affected the supply chain. The issue is the outcome of the geopolitical tension between the different economies. It disturbs the supply chain due to the repercussions. Companies moved the production geographically closer to the supply chain.

Moreover, the “African Continental Free Trade Area” and “Regional Comprehensive Economic Partnership” are a few examples of the political aspect that disrupt the supply chain. The COVID-19 restrictions further influence the economic partnerships. The free trade area is expected to divert the routes into favourable geographies.

Conclusively, large-scale investments like the low-carbon economy, sustainable resources, and green technologies are the ones that can resolve such issues. Almost every democracy requires sustainable planning. Thus, the “COP26” talk outcome is an urgent scaling of the climate and sustainable financial planning.

A quarter of Australia’s supply businesses faced hiring issues due to the pandemic restrictions. - Statista

The need for supply chain performance measurement and financial analysis planning is urgent. Developing countries' yearly financial climate adaptation expenses will be three hundred billion dollars by 2030. Additionally, a five hundred-million-dollar budget entails once the mitigation target is reached within 2050. The decarbonisation of shipping must start now to build sustainable supply chains.

Economists are more focused on the current global supply chain issues. Further reasons why you can use it to compose a literature review on the same. So, suppose you face issues in academic writing or need to learn the ropes of academic writing. In that case, you may fill out the enrolment form for a Systematic Literature Review On Supply Chain Management composed by our experts. Enrol today for additional free access to our extensive library comprising assessment answers, solved papers and guidebooks.

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About the Author

Celina

Celina

Hello, everyone! I’m Celina, an educationist and academic consultant. I enjoy reading, learning, and implementing the same in the assignments. I also take a lot of pride in guiding students with their assignments. I have 6 years of experience in writing assignments for students and when not doing that I follow my passion for blogging. I spent my spare time often researching new trends of writing.

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2022-12-08 11:08:52

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