A new Supply Chain Funding Index has been launched by URICA, in conjunction with YouGov and economic advisor, Dr John Ashcroft, to determine the health of our supply chains and the liquidity contained within.
In today’s globalised world, it’s hard to argue that supply chains play an absolutely crucial role. Yet the ability to accurately assess supply chain liquidity and health at a given point has previously proven elusive.
CEO of the Society of Motor Manufacturers and Traders (SMMT), Mike Hawes describes supply chains as being “an essential component to any successful industry, delivering innovation, R&D and engineering excellence to meet increasing customer demands.”
You can’t improve what you don’t measure
To address the issue, supply chain funding specialist, URICA has created the Supply Chain Funding Index (SCFi) with market research firm, YouGov. In essence, the SCFi provides the ability to measure how well the supply chain is functioning.
Using the SCFi, we can quantify the strength or weakness of the supply chain by sectors, size of company, among importers and exporters, and where businesses are positioned in the supply chain.
The first measure of the state of the UK supply chain rates it as 6.6 on a scale of 0 – 10, where 10 is the highest score. Manufacturing and industrial engineering & maintenance services scored 6.6 and 6.5 respectively – with 6.0, construction was the lowest performing sector, and at 7.1, wholesale, retail & regional distribution was ranked top.
The data also revealed that suppliers at or near the bottom of the supply chain, where it performs less efficiently, scored an average of 10% lower than those near the top. This could be a reflection of their vulnerability and the resulting financial pressures they face.
Why is it important to measure supply chain liquidity?
According to URICA, supply chain liquidity allows businesses to improve overall performance, creates greater confidence in cash flows, and brings higher levels of investment. For too long, evidence of supply chain deterioration has relied on anecdotal or apocryphal perceptions. The SCFi aims to eliminate potential bias and promote statistical, fact-based evidence.
In his recent review of the SCFi, business economist, Dr John Ashcroft, suggested a 10% improvement in the SCFi would result in a 3% increase in growth and productivity.
Ashcroft explained: “Greater confidence in cash flow and liquidity levels would result in higher levels of investment, more employment, and higher growth rates.
“Higher confidence in the supply chain would also result in greater investments in labour skills and the level of apprenticeships. There can be little doubt from comments within the survey: business productivity would improve as a result of improvement in supply chain liquidity.”
Late payment reporting
Alongside supply chain liquidity, the SCFi will also be a useful tool to expose any imbalance regarding payment terms an individual company receives. According to URICA, most business in the supply chain are both buyers and sellers, and consequently both creditors and debtors.
The payment terms a supplier may give to its customer up the chain can be longer than those received from its own supplier down the chain. The report shows that the average credit businesses receive is 43 days, an imbalance occurs because the majority of businesses receive between 14 and 30 days.
The report notes that the average could be skewed by those businesses receiving up to 60, or more, days.
Ashcroft concluded: “With the benefit of the URICA SCFi, we can begin to realise the benefit to the economy from greater liquidity and improved payment; it is much more than improving a lot of the small businesses and those at the end of the food chain.”