Resources | Treasury Management | October 9, 2023

Digital Transformation in Retail: Leveraging Technology to Advance Your Supply Chain

Retail supply chains and finance management processes are more integrated than ever. Here’s how digital transformation helps both.

sporting goods retail store

In 2021, supply chain disruptions had the single biggest impact on treasury in the EMEA region, according to an Economist Impact survey supported by Deutsche Bank.

While a lot has changed since 2021, there’s no question that supply chain management remains top of mind for retail treasury teams. As customer demands evolve, and interest rates and operating costs rise, retailers must rethink how supply chain management can optimize cash flow, drive smarter financial decisions and reduce risk.

The consensus among industry experts is that digital transformation — the integration of technology into business operations — is key to more efficient, transparent and cost-effective supply chains. Solutions such as automation and data analytics give retailers the insights and tools needed to streamline supply chains. This ultimately helps businesses improve cash flow and grow in a competitive and rapidly changing industry.

This article takes a closer look at how digital transformation supports treasury teams focused on addressing current supply chain challenges.

Supply chain challenges for retailers

Like most other industries, retail supply chains are faced with a combination of higher costs, evolving customer expectations and economic uncertainty. Rising inflation means that the cost of raw materials, energy and labor is impacting the bottom lines of retailers like you. And, the vulnerability of complex, offshore supply chains is also prompting retailers to adopt nearshoring, which can further increase manufacturing costs.

Offsetting higher operational expenses through financing is more difficult when banks raise interest rates and restrict lending. In response, many businesses are extending payment timelines with suppliers to preserve working capital — a strategy that can further weaken supply chains by decreasing supplier cash flow.

Changing customer demands are putting further strain on retail supply chains. Since the pandemic, consumers now expect omnichannel services, including in-store pickups, and online and app-based shopping, as well as flexible options such as returns and same-day delivery. For retailers like you, this poses the challenge of handling more complex fulfillment and inventory management processes. Customers also see sustainability as a key differentiator, which is putting pressure on retailers to invest in environmental, social and governance (ESG) initiatives.

Digital transformation in retail supply chains from a treasury perspective

Digital transformation not only benefits retail supply chains directly but also helps treasury teams reduce risk and meet financial targets.

Improve supply chain efficiency

Artificial intelligence (AI) techniques and machine learning are helping retailers gather meaningful insights from supply chain data. Most businesses are inundated with data across the supply chain, from inventory levels to transportation data. What’s more, data is often siloed in multiple different systems, making it harder to get a holistic, unified view of your business’s supply chain operations. AI-powered solutions, such as data analytics software, can help you quickly unpack this information, identify inefficiencies and implement automation.

For example, enterprise resource planning (ERP) systems can show you sales patterns in different locations, prompting inventory management to ensure sufficient stock based on anticipated demand. AI-powered robotics can help address labour shortages in your manufacturing facilities, reduce human error and produce goods faster. Real-time transportation visibility (RTTV) software can predict delivery timelines more accurately and suggest ways to make your transportation systems more efficient.

For treasury teams, more efficient supply chain processes driven by digital transformation translate to cost savings. This ultimately frees up working capital that can be used to invest in growth or to further optimize supply chain processes. Using digitalization to streamline supply chains can also reduce Scope 3 emissions and address ESG targets by minimizing fuel consumption and waste.

Overcome financial risks

Retail supply chain management is often associated with handling the production and movement of physical goods. However, it also entails monitoring financial risks and understanding how market conditions and other factors interact with your supply chain. This information is essential for treasury teams, which need to anticipate and avoid financial risks. Some supply chain risk factors relevant to treasurers include:

  • Regional laws and regulations
  • Geopolitical conflict
  • Economic conditions
  • Currency fluctuations
  • Stock prices
  • Natural disasters
  • Financial fraud
  • Invoicing anomalies
  • Cybersecurity issues

Supply chain visibility software can automatically integrate and analyze this information and provide real-time insights. For example, currency fluctuations in a country where your company outsources manufacturing could impact your bottom line or require shifting to an alternate supplier. Suspicious transaction information might alert your business to financial fraud, and some technologies can evaluate supplier credit risk as part of your procurement strategy. Through digital transformation, treasury can leverage this information more quickly and accurately to inform risk management and protect the business from financial uncertainty.

Expand working capital opportunities

Higher interest rates and a credit crunch mean that it’s harder for many retailers — and their suppliers — to secure working capital financing through banks. Thankfully, fintech companies are helping retailers like you access funding outside of traditional financial institutions. Some options include:

  • Digital lending. These solutions use machine learning to expedite loan qualification and approval processes. 
  • Credit score alternatives. Rather than using credit scores and tax history to evaluate creditworthiness, some fintech solutions use a company’s accounting and banking data.
  • Early payment programs. These buyer-initiated programs enable suppliers to request early payments in exchange for a discount. Innovative solutions such as C2FO’s Dynamic Supplier Finance provide a more flexible alternative to traditional supply chain financing, giving retailers the option to switch between funding early payments on their own or through a global funding network.

Alternative lending options make it easier for you to access much-needed working capital. Early payment programs offer some additional benefits, strengthening the retail supply chain by improving supplier cash flow. Accepting supplier discounts also gives you a risk-free way to generate returns and improve margins. Additionally, some programs make it easier to segment diverse or environmentally conscious suppliers, helping advance ESG initiatives.

The future of retail supply chains is digital

Factors such as COVID-19, geopolitical conflict and economic downturns have illuminated the interplay between supply chains and financial risk. Supply chain visibility is now crucial for retail treasury teams tasked with addressing high operational costs and limited business financing options. 

For forward-thinking retailers, digital technologies such as data analytics software and working capital fintech solutions can not only help supply chains become more efficient and cost-effective — they can also provide more flexible and accessible financing.

Looking for a cost-effective way to strengthen your supply chain while improving cash flow? Learn more about C2FO’s solutions.

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