The impact of covid-19 on the global economy, customer purchasing patterns and production capacity has forced many chemical suppliers to consider actions that they would not have considered in the past in order to maintain their operations in this difficult environment. All of these countries face the challenge of trying to reduce the spread of covid-19 while ensuring the safety of their staff, while meeting the demands of customers and, in some cases, the desire to enhance capacity.
Cooperate and integrate with suppliers and customers to improve long-term common resilience and success.
As chemical suppliers rationalize their portfolios, it is important to remember that their major suppliers and customers are also experiencing these difficult business environments. These include the oil and gas industry, which has been hobbled by demand disruptions and price wars, and auto companies that have been forced to suspend production in a downturn to protect the health and safety of their employees.
In fact, some suppliers are very important in the value chain. They produce different products for specific customers, and their business ability may be threatened. It’s a difficult balance that requires negotiation, innovative thinking and a new business model.
Chemical companies are taking advantage of an opportunity to help suppliers improve their financial security, which is the supplier financing plan, using third-party financial platforms or funds. These financing programs can help suppliers to obtain cash when necessary without borrowing money, giving them the flexibility and support to provide uninterrupted products and services to manufacturers. In the past few months, we have seen an increase in the number of suppliers using these items in a number of industries, as well as an increase in the amount that suppliers pay in advance, rather than waiting for cash payments based on their payment terms.
The company should also make sure that customers and suppliers are facing serious financial pressure and understand their viability. Once we pass the immediate challenges and prioritize cash from customers, in addition to clearly understanding the potential impact, whether suppliers can no longer source materials for the company.
After we have overcome the challenges ahead of us, plan a working capital management approach.
Even if there is no clear understanding of the future, it is still the time to make plans. Consider how the company will adjust its cash flow and working capital management when covid-19 restrictions are relaxed and customer demand begins to recover or transfer.
This includes identifying and retaining key strategic initiatives and, where possible, isolating funds in order to reactivate these efforts as the economy recovers. Cash should be managed not only to protect the organization in the present, but also to focus on protecting its future.
Even in addition to the necessary review of working capital, the current challenges provide an opportunity for chemical suppliers to gain a deeper understanding of their ability to cope with business continuity and economic pressures, their service capabilities and customer behavior. As mentioned earlier, chemical manufacturers can take advantage of this opportunity to re-examine their purchasing patterns, determine which products’ demand is changing or growing, and then reshape their product portfolio according to the post covid-19 environment. If it doesn’t move now, maybe it shouldn’t be in the lineup.
After the urgent public health challenges have been resolved and the global economy has begun to recover, if chemical companies can quickly adapt to meet the working capital needs of themselves and their suppliers, the difficulties they are experiencing today may lead to stronger business tomorrow.