Lockton Monthly Macro Series: Supply Chain Risks

The latest edition of our Monthly Macro Series focuses on supply chain challenges and the impacts on businesses, including insights from Octet, a leading supply chain finance and payments specialist.

We cover:

  • The supply chain risks and response and the pressure this has placed on the industry.

  • The short term, mid term and long term causes and effects of supply chain pressures.

  • The impact these challenges have had to businesses.

  • Key risk management actions to take.

  • How to protect your business from supply chain pressures using finance and insurance.

  • Case study of a real-life success story.

Supply chain overview:

  • There continues to be lingering effects from Covid-19, impacting production and distribution.

  • The Russia-Ukraine conflict has impeded the flow of goods, creating further shortages, and in turn, increased fuel costs.

  • The availability of shipping containers and drivers has caused bottle-necking of goods and supplies and other major business interruptions.

  • Unemployment is a major issue across Australia that has effected supply chin across all industries.

Causes of the supply chain crunch:

  • Shifts in consumer spending from services to goods, for example during the pandemic lockdowns consumers changed their spending habits.

  • Lockdowns, staff illness and quarantine requirements meant that manufacturing and distribution facilities experienced unscheduled closures and production pressures.

  • Border procedure bottlenecks. Additional protocols, border checks and documentation procedures all contributed to transport delays.

Real-life example of the impact to businesses:

Even global, well-established brands have not been immune. In June, Revlon declared
bankruptcy, saying that supply chain disruptions had caused a runaway increase in
raw materials costs. In response, vendors insisted on upfront payments, and it became all too much for the cosmetics giant. Read the full Octet blog here (opens a new window).

Key risk management actions to take:

  • Review and develop your business continuity procedures to encapsulate an ever-evolving risk landscape.

  • Invest in technology to help minimise operating costs, and provide better oversight of your customer’s needs.

  • Expand your network by developing strong relationships with multiple suppliers, and review existing relationships to ensure they can respond efficiently to changes in consumer behaviour.

  • Establish processes and procedures that monitor ongoing risk – including the risk of your suppliers and customers.

Protection against supply chain pressure:

  • Flexibility is paramount and can be achieved through Octet's Trade Finance facility.

  • Debtor Finance solution, allowing businesses to access up to 85% of the funs tied up in accounts receivable straight away.

  • Via Octet's Working Capital Solutions to better manage cashflow, minimise financial risks and maximise the efficiency of supply chain.

Case study of a real-life success story:

A Lockton Trade Credit Insurance client provides plastic containers with custom labels
to their customers.

While the policy covers invoices for goods sold, our client had to incur expenses prior
to the sale of goods to produce custom named labels. Lockton negotiated 90 days preshipment cover for bespoke goods with the insurer.

Subsequently, one of our client’s customers became insolvent 60 days prior to invoice.
At this stage, thousands of containers with custom labels had been produced and
expenses already spent.

As the labels were at that point worthless, the client was able to claim this loss under
the policy. The plastic itself, however, was able to be used for another customer and
treated as salvage which reduced the claim value. The labels themselves accounted
for approximately 20% of the total invoice value. Without the insurance this would have had to be written off as a bad debt.