Identify and Communicate: Foil Financial Chaos

The banking crisis may not affect everyone in our industry directly, but the ripple effect is changing the business landscape. It’s going to impact how we look at our business.

There are plenty of examples of current banking challenges. Most recently, J.P. Morgan bought First Republic Bank in the wake of attempts to salvage the floundering institution. Earlier this year, California-based Silicon Valley Bank was taken over by U.S. regulators. Another regional bank, Signature Bank, was shuttered. On the global stage, Credit Suisse only managed to avert failure through a takeover by UBS.

The natural financial result of the turmoil has been a tightening of credit. Interest rates are going up and, to strengthen their balance sheets, banks are holding onto cash and stepping away from past aggressive lending strategies. This rising expense of capital and regressing availability translates into a slowing economy—and the technology sector feels it more than many other sectors.

Many technology organizations, including distributors, are heavily inventoried. The cost of holding that inventory has gone up dramatically. That affects the bottom line and the ability to purchase new inventory.  Electronics purchasers are buying less at a time because the future impact of pricing and inflation remains uncertain.  We end up doing the same thing—we don’t make the big market buys that we do when money is cheaper.

Remember the frenzy that semiconductor supply chain issues created in past years? That’s cooling down now. Rather than planning to have a year’s worth of product, our customers are looking to meet their needs just three months ahead. However, there are disciplines you can deploy to be more strategic in this new landscape.

First, organizations should take warning signs of market shifts seriously and react quickly. Sales and procurement managers need to work in concert with their chief financial officers to preserve and enhance their supply chains. Everyone is going to have to be more selective about which areas necessitate aggressive buys, and which can be managed with a more conservative approach. By proactively holding cash where we can, we can start to manage the current economic realities.

This summer is going to be interesting. In June, banks do stress testing with federal authorities, and everyone is going to be looking for those data points. For example, banks need to demonstrate a certain level of liquidity and balance sheet strength. If even a small percentage of banks fails those stress tests, we could be in for a full-fledged banking crisis. I personally don’t believe that will happen. This current chaos seems more isolated than past financial crises.

Bank closures stoke fear, but strategic thinking will create the way forward. Understand how various factors affect your company. Start communicating more with finance and sales to make sure everyone is in lockstep. Be smart and strategic—don’t be just a buyer, be a strategic buyer.

To read the article on EPSNews.com, click here: https://epsnews.com/2023/05/03/identify-and-communicate-foil-financial-chaos/