Article

Seize your FX advantage

Why a fluid supply chain built on analytics is key to negotiating exchange rate volatility

This article is taken from the Managing the Unpredictable report, published in association with Columbus.

In these times of economic and political uncertainty, we have come to expect the unexpected.

Nowhere is this more relevant than in an organisation’s supply chain. While globalisation provides access to new markets, new technologies and expanded sourcing opportunities, businesses must also be prepared to react quickly to events outside their control.

In addition, foreign exchange (FX) rates can fluctuate dramatically over the course of a supply agreement

For example, new research shows that more than a quarter of UK and US businesses suffered a negative impact in the last five years on their supply chain due to a natural disaster, while cyberattacks hit one in five supply chains.

In addition, foreign exchange (FX) rates can fluctuate dramatically over the course of a supply agreement. In response to this, successful businesses have found that building and maintaining a fluid supply chain allows them to act quickly to FX changes, as well as manage risk and seize commercial opportunities.

“With today’s global markets characterised by uncertainty and volatility, procurement networks linked to a single-​source of supply may not be advantageous. Instead, businesses should ensure their supply chains are as nimble and reactive as possible,” explains Roy Williams, co-​founder and managing partner at technology-​led management consultancy Vendigital.

Mr Williams says that as well as allowing businesses to protect themselves against exchange rate fluctuations, flexible sourcing can help organisations make the most of market opportunities by keeping their options open. For example, transitioning to a dual or multi-​sourcing strategy might make it easier to build strategic stock or respond to new markets.

“As well as having a choice of suppliers, it’s also important to consider how readily the business can switch between them,” he says. “As part of this process, it’s vital to understand fully any product or service specifications and aim to ensure that alternative suppliers are pre-​approved and ready to use. Pre-​existing knowledge of which suppliers have overseas facilities could also prove valuable when seeking to mitigate the effects of FX volatility.”

Antony Lovell, vice president of applications at Vuealta, which specialises in connected planning services and support, says businesses should think about implementing an advanced planning system to handle this uncertainty and identify any piggybacking opportunities. He argues that real-​time, collaborative and event-​based planning allows organisations to connect, analyse and verify different data sources quickly.

“For example, if freight rates, exchange rates or some other factors have made alternate sourcing cheaper, businesses can ensure they are not blindsided and are fluid enough to quickly switch supply,” he says.

“Working with an advanced planning system, businesses can respond to all potential ‘what ifs?’ with ease. Those that do will be in a much stronger position to not only survive the chaos, but seize the opportunities, which will inevitably appear, ultimately gaining much greater competitive advantage.”

As seen across the entire business landscape, leveraging analytics can also help organisations make better informed decisions such as when to export and when to hold goods back or stockpile material.

“Through flexible, distributed supply chains that are tightly inter-​connected, coupled with predictive analytics, organisations can get greater insight into market needs. This means they can take advantage of both FX changes as well as energy price fluctuations,” says Jonquil Hackenberg, head of C‑suite advisory at Infosys Consulting.

For example, Ms Hackenberg says that knowing their order book means businesses can plan when to buy parts, potentially in another currency, and do so at a time when the buying currency is at its strongest. Similarly, knowing the single unit energy cost of production means an organisation can buy excess power on the energy spot market when prices are lowest, reducing outlay.

“By using analytics to assess predictive buying patterns from customers, an obvious upside is cost-​savings through reduced inventory, as well as faster time to market and therefore more satisfied and more loyal customers,” she says.

Analytics also enable more accurate demand planning through accurate prediction of buying patterns

“With analytics predicting downtimes for maintenance in discreet manufacturing and consumer goods industries, the triple bottom line can be ensured through lower waste and predicted energy usage. If you are able to calculate the energy requirements to produce a single unit, you can maximise lean manufacturing and cost-​reduction.”

Analytics also enable more accurate demand planning through accurate prediction of buying patterns, resulting in a better balance of supply with demand, which means more accurate forecasting for the market, leading to greater stakeholder satisfaction, notes Ms Hackenberg.

Predicting the future is impossible. But market volatility and economic uncertainty are the new normal. Ensuring your supply chain is flexible and fully optimised to absorb these risks, and potentially benefit from them, is vital in a competitive business landscape.