Why supply chains matter

https://www.wsj.com/articles/why-is-the-supply-chain-still-so-snarled-we-explain-with-a-hot-tub-11629987531?adobe_mc=TS%3D1634479540%7CMCMID%3D66329940426629611998333562908936619243%7CMCORGID%3DCB68E4BA55144CAA0A4C98A5%40AdobeOrg&wsj_native_webview=androidphone

Eugene Van Den Berg, Oct 2021

The Wallstreet Journal writes about the interconnection of supply chains, which most take for granted as we only see the end product and have a “sort-of idea” of the input materials.

In this article, although the complex procurement system supporting the manufacturing of hot tubs is used to illustrate it, and there are thousands of similar manufacturers in the world, it is an excellent example of the different processes at work to bring a final product to the consumer. The type of process is not limited to only the manufacturing of hot tubs. All products are supported by procurement and supply chains running effectively.

Supply chains are akin to the oxygen flow in your bloodstream. Constraint oxygen causes multiple problems.

Think back to the 1700 and 1800 small towns: one street, a few businesses along the main street. Supplies were sourced locally on the main borders of the city. Think about the general dealer and local horse smith and iron-works depicted in The Little House on the prairies. Live was simple.

Today, sourcing and procurement are complex. It’s driven by globalization and massive integration. The internet, transport modernization, access to information, online transaction processing, communication technology, etc., played a significant role in shifting procurement from local sources, as it was in the 1800s to thousands of miles away on the other side of the globe today

A question I am asking, is how would prolonged supply chain challenges impact working capital and funds flow for businesses? Can it lead to seizing up working capital because of liquidity constraints brought on by delays? What does that do to interim borrowing, capital management, financial restructuring? What does it do to the recognition of liabilities stemming from pending order fulfillment? All these aspects in their own right causes are crowding out effects, and they all share a single dominator, “unforeseen delay.”.

Print Friendly, PDF & Email

Eugene Van Den Berg

Eugene is an accomplished Analyst, Accountant, Controller, CFO, and Corporate Finance expert with many years of diverse finance and accounting experience across different industries. He is a knowledge- and information worker with a passion to solve complex financial management problems and processes. Eugene is passionate about finance and economics and enjoys blogging about interesting economic aspects of current times