How Inventory Financing Makes your Organization more Resilient
The global supply-chain crisis taught the business world a hard lesson: the prevailing just-in-time procurement strategy can collapse when there are widespread supply shortages and shipping delays for critical parts and materials.
At the peak of the COVID-19 pandemic and in periodic spikes since, lockdowns in China caused port closures, slow movement of goods and higher freight costs. For companies that entirely depended on supply lines from affected areas, the disruption impacted business sustainability.
Now, as the global economy rebounds from the depths of the crisis, many businesses are pivoting to a just-in-case model, incorporating stockpiles of critical parts and materials to better ride out future disruptions. This represents a tactical and seismic shift for many businesses.
The ongoing war in Ukraine—which has roiled energy markets and disrupted global access to Ukrainian and Russian grain commodities—is a clear reminder that the continued need to be laser-focused on supply chain resiliency is bigger than COVID-19. Preserving operational flexibility and access to critical inventories should be top of mind for business leaders, simply because no one can fully predict the next instance of volatility.
However, the just-in-case model, can tie up vital working capital needed for expansion, growth and sustainability. In the fourth quarter of 2022, U.S. business inventories, seasonally adjusted, were at the highest level in the past three decades, according to the U.S. Census Bureau.
Inventory financing solutions, which J.P. Morgan’s Trade and Working Capital team delivers to clients across sectors and industries, can help companies drive supply chain resiliency and business growth through:
- Optimized procurement for stronger purchasing power
- Improved working capital and balance sheet ratios
- Reduced carrying costs
- Shortened Days Inventory Outstanding
As the current supply chain pinch eases and with consumer spending holding strong, now is the time for businesses to reassess their inventory management strategies to ensure readiness for the next period of market turbulence.
Anubhav Shrivastava is head of Trade & Working Capital for Commercial Banking at J.P. Morgan, where he leads a team responsible for helping clients access tailored financial solutions to manage their working capital, reduce cash conversion cycles and mitigate risk as they conduct business globally.