URICA launches new Supply Chain Funding index (SCFi) in conjunction with YouGov and economic adviser, Dr John Ashcroft. The SCFi measures the condition of the supply chain based on perceptions of strength and payment stress.
Key findings from the report
- 783 companies responded focused on manufacturing (26%) and construction (25%) but excluded the service sector
- 31% of businesses experienced a break in their supply chain in the last twelve months
- 32% of businesses expect pressure on their supply chain to worsen over the next six months
- The current state of supply chain health measures 6.6 on a scale of 0 to 10 (10 is perfect)
- A 10% improvement in the SCFi would lead to 3% in growth and productivity
We know supply chains are important. What’s not immediately obvious to us is how important. Take Nissan as an example; it employs 7,000 people in Sunderland but how many of us appreciate that it ‘employs’ a further 27,000 people in its supply chain? How many of us realise that the big four supermarkets use 7,000 suppliers to support their 76% market share?
The big companies that sit at the top determine how the supply chain functions beneath them. They are the first to receive cash and they dictate when they pay their suppliers. Those sitting at or near the bottom of the chain are completely vulnerable to what happens further up the chain while being powerless to influence it.
What we’ve never been able to assess is the state of health of our supply chains at a given point. Until now. In a welcome move, URICA – the supply chain funding specialist – has created the Supply Chain Funding Index (SCFi) with YouGov. The SCFi makes it possible, for the first time, to measure how well the supply chain is functioning.
Most businesses in the supply chain are both buyers and sellers. Consequently they are both creditors and debtors. Often the payment terms a supplier has given to its customer up the chain will be longer than those received from its own supplier down the chain. Of course, payment terms are just another name for interest-free credit and the SCFi will be useful in exposing any imbalance. To put this in perspective, the report shows that the average credit businesses receive is 43 days; an imbalance occurs because the majority of businesses receive between 14 and 30 days. The average is skewed by those businesses receiving up to 60 days, or even more.
The first edition of the SCFi rates the supply chain at 6.6 on a scale of 0 – 10, where 10 is perfection. Construction performed worst, scoring 6.0, while wholesale and distribution rated highest at 7.1. Suppliers at or near the bottom of the supply chain, where it performs less efficiently, scored on average 10% lower than those near the top. This reflects their vulnerability and the pressures on their finances.
So why is it important to measure supply chain efficiency? Liquidity in the supply chain means businesses perform better, creates confidence in cash flow, and brings higher levels of investment. Anecdotal evidence from the construction industry suggests a progressive deterioration in the strength of its supply chain since 2009. Around three out of ten construction firms say they would recruit more staff and grow more quickly if supply chain liquidity improved. The SCFi means less reliance on anecdotal evidence of the relative strength or weakness of supply chains.
In a recent review of the SCFi, eminent business economist, Dr John Ashcroft, suggested that a 10% improvement in the SCFi would result in a 3% increase in growth and productivity. Starting from the premise of what you don’t measure you can’t improve, URICA’s SCFi could play a big part in creating liquidity in the supply chain, with all the benefits that brings.