Are you monitoring risk to protect your manufacturing business and create new opportunities?

As a financial decision-maker, what role can you play in helping your organisation not only mitigate disruption but find opportunities to grow and thrive?


Every production and manufacturing business faces risk. From fluctuating currency rates and the impact of the pandemic, to unreliable suppliers and the competing priorities of internal stakeholders, there are many factors that could destabilise your operations.


You’ve no doubt already implemented initiatives to help your business navigate choppy financial waters. Carefully planned hedging strategies, for example, can help you avoid the pitfalls of over-spending on resources when foreign exchange (FX) rates rise. They can also help you prosper should FX rates shift in your favour. Similarly, strategies for on-demand financing can ensure you’re able to make smart investments at the right time. And they can keep your cash flow steady and your supply chain moving.

Of course, monitoring disruption is easier said than done. And with different parts of the business focused on their own key priorities, it’s not always possible to get buy-in from senior management to fund your initiatives – even if they could protect against key threats.

We spoke to a number of manufacturing and producing businesses about how they determine and deal with risk. We wanted to know what processes they have in place to monitor and analyse hazards, and how they collaborate internally to ensure everyone is focused on the same objectives.


Are you having enough impact on the security of your company’s trading?

Many of the threats that could impact your business are likely to come from external sources. So, you need to monitor different markets and be aware of what potential risks lie around the corner. Through your role in Finance, you’re perfectly placed to keep an eye on trends in other sectors. You can collaborate with both internal and external partners, gaining valuable insights on changing operating conditions and what effect they might have on you.

The role of the treasurer is a facilitator between external parties (banks, financers, advisors) and internal audiences. You are really representing both groups.

GROUP TREASURER, LARGE GLOBAL FROZEN FOOD PRODUCER


You can then analyse this information to inform decision-making – helping you make smart investments, safeguard your financial position and react to market volatility. As the treasurer at a mid-market enterprise in the packaging industry tells us, “I talk to external foreign exchange (FX) advisors every day for advice. I take currency information to the operating committee so we can manage our position.”

You also have access to a wealth of financial data and analysis, through your relationships with banks and third parties. These insights help with future planning and proactively mitigating against risk. For example, if you’re looking to enter new markets, it can be highly beneficial to get a better understanding of unfamiliar trading cultures, political risks, different payment structures and how FX rates could affect both your bottom line and your access to resources.

With our entire production capability located overseas, political volatility affects us indirectly. Any tariff applied to our production costs would provide a major risk to the existence of our business model today. So, we have to monitor the situation and consider our options.

Finance & Treasury Manager, mid-market enterprise in the packaging industry


Similarly, if you’re entering new relationships with suppliers, you need to know if they present a credit risk. Do they work in a way that might affect your ability to stay compliant? And are you fully protected against potential fraud? With the right knowledge, you can find ways to prevent the worst from happening in any situation.


Do you know your own business inside and out?

As well as monitoring external sources of risk, you also need to keep a close eye on your own business. With up-to-date metrics and insights into performance, you can forecast more accurately and reduce uncertainty.

As the financial gatekeeper of the company, you have insights into every area of the business. Where other departments (accounts payable, accounts receivable, procurement, IT) have responsibility for just their part of the overall chain, you can use your expertise on business flows and working capital to help shape and guide different elements.

By analysing data and collaborating with different teams, you can help the business identify and plan for financial risk. As the treasurer at a mid-market enterprise in the packaging industry says, “I spend a lot of time working with internal teams. We spend a lot of effort updating our stakeholders on business performance. I work with our cost teams, the margin team, and prepare a lot of reports.”


Are there any weaknesses in your sales and supply chains?

Of course, it’s not only your performance you need to remain vigilant about. You also need to look for potential risk with the partners in your supply chain. This means everyone from the suppliers you source materials from, to the partners with whom you might share production equipment, all the way to the retailers you’re supplying. While your financial health may be rosy, a problem with any of your partners could see your production grind to a halt. Or you could produce too much or too little of your products. All of which could have serious ramifications. With the right technology in place, you can gain real-time insights into every element of your chain – helping you detect and react to risks.

One project we’re working on is digitalising the end-to-end process with suppliers to give us the visibility we need.

FINANCE LEAD, MID-SIZE LOGISTICS EQUIPMENT MANUFACTURER


Many businesses are investing in digital technology to analyse business data. And they’re working with their banks to build the right tools and platforms that give them better visibility and control. With this information, they can put processes in place to:

  • Manage the performance of suppliers and reassure buyers
  • Protect supplier relationships – through increased resilience and improved supplier management
  • Insure against non-payment and unexpected cash flow issues


Are you and your stakeholders on the same page about protecting the health of your business?

Understanding how your company can protect itself from financial risk is one thing. But getting buy-in from your internal stakeholders could be another – especially if they’re focused on other objectives, like growing the sales pipeline or investing in other areas. The treasurer at a large global hospitality corporation tells us: “You need discipline as to what you’re using cash for short- and long-term. This helps the business deal with currency restrictions, plan for dividends etc. My stakeholders need to understand the need for good cash management and why.”

As they say, it’s important to work closely with your stakeholders, helping them understand the potential risks they could be open to. For example, the procurement team might want to hold back on ordering materials should prices start rising. But that could affect productivity, leading to shortfall in stock and an inability to meet consumer demand. Not great for your revenue growth. With a holistic view of your entire chain, you can help people understand the knock-on effects, and make smarter decisions to avoid these kinds of risk.

Any tariff applied to our production cost would provide a major risk to the existence of our business model. We have been considering our options, which include passing on the costs to our customers. However, this would make us less competitive.

TREASURER, MID-MARKET ENTERPRISE IN THE PACKAGING INDUSTRY


You’re also under pressure to keep the company finances healthy and report strong balance sheet metrics. However, this can create risk in itself. Keeping money within the business could mean you run short on resources, leading to a detrimental effect on production. The group treasurer at a global manufacturing corporation tells us: “The need to keep cash in the business to make our balance sheet look good puts a lot of pressure on our ability to pay suppliers. To extend our payment terms to suppliers, we started using a supply chain finance programme. That really helps us, and with suppliers getting their cash earlier, it helps their businesses, too.”


Are you doing everything you can to protect your business?

In the manufacturing and production sector, there’s no hiding from risk. But as a financial decision maker, you’re in a unique position to help your business to not only avoid risk, but turn instability into new opportunities. However, there are a few questions you need to answer. Are you keeping an eye on all the different sources of data about external trends? Are you able to spot any weaknesses in your internal operations, processes and supply chain? And are you working to ensure all your stakeholders have bought into your initiatives?

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Need more answers and insights? Learn how other businesspeople like you are using data, insights and innovative finance management to protect their businesses. Talk to one of our advisors.


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