Funding Flow
A smooth flow of funds is essential to a properly functioning supply chain at both the strategic and operational levels. Analyzing the flow of funds helps provide information on strategic issues--such as how variability and reliability of funds impacts product flow--as well as operational issues like whether there adequate resources available to cover expenses necessary to meet supply chain goals.
Strategic Issues in Funding Flow
There are a number of issues that can affect the role of funding flows in a supply chain.
Type of funding: A supply chain can be supported by monies internal to an organization, or it may require outside contributions. Humanitarian supply chains likely rely heavily on donations from funders and individuals, which introduces a set of challenges to the supply chain analysis:
- Where does the money come from? Is there a dedicated donor for this commodity or program, or do funds come from a variety of donors each year? Are monies received under special programs or circumstances, or are they part of a regular funding situation? Different donors--whether governments, philanthropies or individuals--may impose different requirements on the supply chain, including programmatic objectives, transparency mechanisms, and performance reporting.
- When does it arrive? Ideally, the availability of funds, both timing and amount, would coincide with need for the product. If funds are not available when needed or if they are insufficient, the supply chain may work in a reactive mode and introduce inefficiencies and increased costs. An ideal system would ensure that funds are always available up front at the time of need.
- How is it requested? Is there a clear and transparent fundraising mechanism? Which stakeholders generate these funding requests, and who provides inputs into the process?
- How much has been received? How does this correspond with what was requested? Are programs over- or under-funded?
Flexibility of funding: Donor-supported supply chains in particular may include inflexible funding flows because donors can earmark donations for a specific country, for a type of project, or for the purchase of a designated commodity. When funds are earmarked, this risks inefficiencies in the supply chain, such as an excess of funds for one aspect (e.g., a product) and an underfunding for a complementary product or function (e.g., the product’s distribution). Unearmarked funds may be preferable, as they allow flexible use so that monies can be directed to where they can be used most effectively.
Coordination of funding flow: Is there a coordinating body for the supply chain’s funding flow? Harmonization of funding amounts and schedules can help reduce variability in the supply chain. If procurement and implementing organizations can accurately predict when funds will be needed and how much would be necessary to execute planned operations, they could work in cooperation with donors to coordinate funding schedules and fulfill needs in a timely manner.
Role of input costs: The cost of inputs for manufacturing and transporting a commodity can directly affect supply chain cost. Fuel is an example of a highly price-volatile input that impacts commodity supply chain costs. When planning a funding flow, it is important to take into consideration how global market dynamics may impact commodity input prices and increase or reduce resulting supply chain costs.
Currency risk: For global supply chains, currency exchange rates introduce a level of complexity in estimating annual income and costs. Income may be in one currency, while invoices from goods and services providers may be billed in an alternative currency. Fluctuations in exchange rates between the two currencies can cause the realized costs for goods and services to increase or decrease unpredictably.
RUTF Case Study: Funding Flow