How to Avoid the Pitfalls of Sourcing and Shipping

Offshore product sourcing and shipping are the twin scourges of many an Australian SME. They are expensive and play havoc with cash flow; they are time consuming and complicated to arrange; and both expose the business to financial and logistical risks.

For those involved in the manufacture of goods in particular, shipping can be an expensive business. Meanwhile, the need to manage the supply chain in order to ensure there are always enough raw materials available to meet orders and operate a factory efficiently is a major challenge for small growing firms.

Those that want to grow, in particular, face funding shortfalls when it comes to paying suppliers and logistics companies ahead of large orders which they themselves will only be able to invoice for once the goods are delivered. When the invoice actually gets paid is another matter altogether!

Common Supply and Shipping Problems
Australian supply chain and logistics management firm Dawson Consulting argues that smaller firms face disadvantages in three key areas: supply chain visibility; keeping up with technology; and strength in supplier relations.

“Smaller companies often find themselves at a disadvantage when it comes to supplier relationships, since unless suppliers or partners are also small businesses, the buyer does not have the scale to create leverage,” Dawson’s experts say. “If yours is a company with a $50 million annual turnover or less, for example, it’s not going to be easy to create a balanced relationship with a supplier turning over $500 million.”

Visibility – which closely relates to risk and security of supply or delivery and technology, both disadvantage smaller companies because of a lack of investment capability. They simply can’t match the resources that large corporates put into this area.

Arguably though, technology is actually coming to the rescue: we saw last month how there has never been a better time to start exporting, because automated interfaces and algorithmically-driven bespoke packages were becoming commonplace, not to mention translation tools.

On the finance side too, technology is providing SMEs with more options than ever. Australia is a world leader in Fintech and there has never been a bigger choice of business funding options – from alternative business loans to invoice discounting, financing, trade finance, supply chain funding and export finance, but supplier relations are perhaps the real key to turning the shipping and supply situation to your advantage.

Solving Problems, Finding Savings
We have already argued in these pages that logistics is both an area of considerable expense to manufacturers, and one where substantial savings are often to be found. Logistics made up 8.6% of Australia’s GDP in 2013, employing 1.2 million people and moving about 26,000 ’tonne kilometres’ of goods for every person in the country. An increase in logistics productivity of just 1% would add $2 billion to the economy – and you can try to get a share of that increase because the sector is making efficiencies fast.

Similarly, if you can shave a small percentage off your supply costs the effect on the bottom line will be considerable. However, as with shipping you’ll want to do it without compromising on quality or reliability. That means keeping your relationships strong. Ideally, you want to reinforce your status as a valued customer to transport service and other suppliers rather than being seen as a minnow to be ditched once a bigger opportunity comes along.

How do you do that? With the right financing, you can save money not by squeezing your suppliers, but by helping them. Just like you, they have their own cash flow issues and often have to dip into the business overdraft or funding facility to pay for fuel, parts and labour. If you paid them as soon as their invoice was issued (within 24/48 hours), you’d be doing them a big favour and they would more than likely thank you with an early settlement discount.

OptiPay has a funding product that is tailored to do just that, for all your suppliers. It’s called Supply Chain Finance (or Trade Finance) and it works by making sure you get paid on time as well. It is just one way that technology is levelling the playing field for SMEs and ensuring funding or cash flow constraints don’t hamper Australia’s small and medium businesses.

“Get Tomorrow’s Cash Flow Today”

Share This Story

On the lookout to improve your business finances?

Stay ahead, sign up to the Optipay Finance Newsletter.

OptiPay Cash Flow Finder