Name: Supply Chain in 2026: Execution Certainty, Financial Health, and the Era of Permacrisis
Uploaded: 2026-05-20T15:16:47.037Z
Duration: 52 min 3 s
Description: Supply Chain in 2026: Execution Certainty, Financial Health, and the Era of Permacrisis

Transcript for "Supply Chain in 2026: Execution Certainty, Financial Health, and the Era of Permacrisis": I'm on screen. Okay. Can you. hear me okay, guys? Yeah. Yes. We can. Fantastic. Well, hello everybody. It's great to be here, and welcome to our webinar today. This session is part of our ongoing series exploring how global leaders are navigating major shifts in business and operations, and today's discussion is brought to you by Procurement Magazine. I'm your host, Matt High. Our title today is supply chain in 2026, execution, certainty, financial health, and the era of permacrisis. Now over the past few years, supply chains have evolved to become a central driver of business performance. What we're seeing now is a very different operating environment. Tariff volta volatility is becoming a structural factor, rather than exception. Geopolitical uncertainty continues to reshape sourcing decisions, and companies are under growing pressure to improve working capital efficiency while maintaining resilience. We are operating in what some describe as a state of permacrisis where instability is not a shock event, but the baseline condition. So in this environment, how do organizations build supply chains that can perform consistently even when conditions do not? That's exactly what we're exploring today, and I'm really excited for this one because joining me are two leading voices in supply chain strategy and financial risk intelligence. First, a former CEO of the Institute for Supply Chain Management with deep experience in procurement leadership and global supply chain transformation, please welcome Thomas W. Derry. And joining him, a leading expert in supplier financial health and risk analytics, helping organizations identify hidden vulnerabilities across their supply networks. James H. Gellert, executive chair at RapidRatings. Guys, it's a pleasure to have you both with us. Welcome. Thank you, Matt. Thank you. Fantastic. Well, look, before we dive into the discussion, I'd like to begin with brief introductions. Tom, if I can start with you, why don't you give me an overview of your current work and and areas of focus? Can I guess tell our audience a little more about your your career to date? Yeah. Well, I've been, you know, I I, was CEO of the Institute for Supply Management, which is a global organization, for nearly fourteen years. I just retired a few months ago. And I had, a ringside seat at a a significant evolution of how supply chains were thought of strategically and, and and and continues to evolve over time. When I first became CEO in 2012, we were operating in a model and a set of assumptions that had existed for nearly twenty years from the mid nineties to the mid, you know, twenty teens, that Brexit happened. I I use Brexit as my milestone event that kind of signaled that the consensus around the benefits of globalization and opening up country markets was beginning to fragment, that there were risks associated with that. And then the next ten years or so, we had not only that unraveling of the consensus around the benefits of globalization, at least to a certain extent, Sure. But then, of course, we have the the COVID nineteen pandemic, and now we have, a a series of geopolitical events that didn't exist and, Mhmm. tension on that. And a change in the fundamental way of thinking, not just in The United States, but I would say around the world and some of the, policies that that countries are using these days to try to hold advantage in the global commercial game. And that's all of those things are represent a significant change, from the operating assumptions that obtained in the past and and represent a series of, of, requirements for companies going forward that they have to adapt to. And so while we're seeing the strategies evolve, and I would I would suggest we're on the the edge of a third set. We went from a a focus on on efficiency and, say, beginning of the nineteen nineties to, an awareness of the need for resilience, which particularly came into. play during the pandemic. And I'd say we're moving on a continuum of strategy to maybe a new place, which I would consider to be the need for antifragile strategies. We'll get into that a little bit later. But, anyway, that's a little bit about, what I'm bringing today's discussion. Thank you, Matt. Interesting. And and a great few teasers there, Thomas. And and James, over to you. Sure. Great. So I'm James Gellert. I'm, one of the cofounders and the executive chair, former CEO of RapidRatings. And, prior to RapidRatings, I had, started and run, three other private companies in data and analytics and technology, space, broadly speaking. And before that, I was a banker focused on credit and fixed income and things that today would be considered private credit and public capital markets. So in this discussion today, I'm very much, thinking through the lenses of everything that rapid ratings does for our clients, but also what it means to be an operator of a private company and what the capital markets implications are that really tie all of that together. But rapid ratings and some of the data that we'll look at today, helps companies across 27 different industries, financial institutions, as well as manufacturing and, in a wide variety of other nonfinancial, industries, helping them with supply chain risk management, third party risk management, procurement, and in some cases, credit risk management on their customer sides. So a lot of what we see, we'll get into during the course of the discussion, but is very much surrounding how companies understand and manage the risk and benefit from the, the oversight and the risk management of public and private companies in supply chains, but not just from a financial health perspective, exclusively, but how financial health of suppliers impacts the business outcomes of both the enterprise business, managing that supply chain, but also the suppliers themselves. So it is very much about an ecosystem of business success, avoidance of failure, and creation of resilience. Last thing I'll say before passing it back, Matt, is, Tom is one of my favorite people to, to have conversations like this with because of his, breadth of experience and the communication that he has regularly with, with chief procurement officers and others in the space. So for me, it's always a pleasure, and and I'm excited about this presentation and the time together and, appreciate everybody who's joined us. Fantastic. Thank you both. I think without further ado, let's get straight into it. I guess to kick things off, maybe, some, some context, it would be great to get a sense of, of the current landscape from both of you. So when you look at supply chains today, what do you think is the single most important shift shaping decision making right now? We'll both have a crack at that, but James, I'll start with you on that one. Well, look. I I think a lot of what we're seeing today is, you know, to to this concept of permacrisis and and hearkening back to Tom's introduction, is it that supply chain risk managers, procurement folks, everyone in an organization that is that is responsible for managing risk and creating resilient, ecosystem of suppliers, they're having to do this in a proactive way more than ever before because the challenges that are coming up are coming up more fast, more furiously, and with greater impact and potential to swing the, outcomes of a business from a revenue disruption perspective, from a reputational risk perspective, from, Mhmm. from a, from from a variety of factors that can dislocate a business and, an impact at both immediately and for long periods of time. Some of the major things that we're contending with today, are on the screen. Things like the interest rate environment, the macroeconomic environment, which we'll talk about more in just a moment. Managing working capital, is a more focused component of good supply chain risk management today than it ever has been. It used to be really in the domain of the finance side of, business, and now supply chain and procurement has to pay closer attention because there are ways of creating working capital efficiency by better supply chain risk management. So that's something that's extremely important. But also private credit and, private equity, the capital markets and how they're affecting suppliers is a topic that no supply chain manager can go without understanding or having some familiarity with where they're really going to be behind the eight ball in understanding the, the impacts on a on a given supplier. I'll let Tom address some of the geopolitical and and economic risks in just a second. But but one concept I wanted to tee us up with here is that in our, 2025, supply chain survey or client survey, looking at people's perspectives on what happened in 'twenty five and going into 'twenty six, we saw some really interesting data, some of the critical pieces being that enterprises experienced at an 85% rate, experienced some increased cost, and many of them, 42%, experienced some production disruptions due to supply chain. A quarter of them experienced quality issues. But the biggest piece here that was really interesting is that 81% of enterprises experienced disruptions in their supply chain of one kind or another, Yet their. suppliers themselves were reporting at a slower rate or a lesser rate of impact, which means that the enterprises are feeling the impact of supply chain problems, but those problems and the impacts of them have yet to flow back up stream into a lot of those suppliers. And we'll get into why that's happening from a financial. health perspective, but that compression in the supply chain is is really important. Great. James, thank you. Thomas, anything to to add on top of that from from your perspective? Yeah. Just to underline a a point that James touched on, the it used to be the case that you were doing your job well if, you know, if product was showing up on time and in full. That's how you were measured. Right? This happened initially during the pandemic and certainly the case today. You're being measured in terms of performance on the financial performance of the firm. You know, if I don't have product in house or I've got work in process inventory and I can't ship it, that's lost sales. That's lost revenue. And the supply chain is now directly linked to that potential, catastrophic event for companies, not being able to ship. You're also now being rated on the margin that you're producing in your company. And we're under tremendous price pressure. We're gonna we're gonna get into some of the details on this on this webinar today. Yeah. But we're under tremendous price pressure. Inflation is real and it's it's getting worse, and you're being rated on that. So it's not enough anymore to say my product arrived on time or the quality was good. These other really, existential kinds of factors for the company are being evaluated, and you're being evaluated on them. And that's a change. That's a change. Sure. Brilliant. Thanks, guys. Good some good scene setting there. Why don't we, follow that up with a a a closer look at what's happening from a macro perspective that leads to this label of of perma crisis that we talked about? I'll start with you, Thomas, and I think we should maybe zoom out a little. Now obviously, we've seen decades of supply chain optimization focused heavily on cost and efficiency. Why is that fundamentally different today, and and and why are we using the expression perma crisis? Yeah. Well, so permacrisis refers to, a number of different factors. And, you know, I'll I'll take a few of them off. Of course, they're geopolitical. tensions. I mean, so we've got the war in Ukraine, the war in Iran. We've got tensions between The United States and China over trade. We've got a tendency in the world towards a a sort of a bipolar global system, one oriented around China, maybe one oriented around The United States and the West. We've got the, fragmenting of the bonds that historically have existed since, you know, the middle of the last century between The United States and Europe, for instance. So all of that represents a significant change in terms of but we also have, in fact, you know, call it climate change if you want, but it's undeniable that the number of weather and climate related events are actually increasing. We know this empirically. So disruption is happening on that front. And then you finally have got the we'll get into some of the stress that's that's that is that, you know, the supply base is experiencing. And and that is creating, the risk of, you know, bankruptcy or inability to fulfill contracts. That's increasing. And those firms are under tremendous stress because of some of these larger factors. in the in the ecosystem that James has already alluded to. So that's that's significant change. And I'll just shifting now to kind of the macro environment, and this is from a US perspective, but we're still the world's largest economy. And so it's it it broadly appeals. I mean, we know from ISM data as of, you know, the end of last month that the economy in The United States is only growing at about a 1.7% rate, and it's balanced across both manufacturing and services sectors. That's not great. That's pretty anemic. You know, it's it's not not growth, but it's weak growth. In manufacturing and in services, production is expanding, but it's expanding at a a slower pace and at a relatively modest pace. Inventories are mostly in balance at the moment, which, you know, reflects the equilibrium that we've arrived at over some big swings up and down over the last couple of years. And there's some indication that because of the price increases that, we've been experiencing, there's been some modest buying ahead to build inventories anticipating further price increases. So that's something to pay attention to. And employment is slowly contracting. That's worth noting. I'm I'm just gonna tee up a scary word here at the beginning. We've experienced stagflation in The US economy in the past. And normally, three criteria are needed to to sort of, you know, define what stagflation is. You need inflation accelerating. You need, low or no growth in the overall economy, and you also need fairly high levels of unemployment. We're not there on the unemployment level, measure today, but it's worth paying attention to over the next few months because if that materializes, I think there's no doubt that we could be headed to that. And that would be a very difficult scenario for all companies operating globally. So that's that's the I guess the takeaway here, there's something that James and I discussed as we're preparing for this. Yeah. You cannot count on a rising tide to float your boat because the tide is not rising. So you need you need to figure out how am I going to win in an environment that is weak. Right? Demand signals are are not clear. They're weak. How are we gonna do that? Here's data from ISM on prices, and notice this very strategic a very dramatic, upturn in in the last couple of months. This is a diffusion index. I won't get into the technicalities of it, but, manufacturers in the in the left hand chart here are saying that prices increased on a month over month basis by 84.6%. A number that high we haven't seen since October 2022 when we were coming out of the pandemic. We had a a actually, we had over overstimulus in the economy. It's it's a historic number, frankly. And in the services side, it's at 70.7%. Equally historic and equally, we haven't seen since going back to the, you know, four years ago. So, we know from data that ISM collected back when I was still, CEO that only about a third of companies have passed along the price increases that they're experiencing to their customer, whether that be consumer or another company. So they've been careful about that and cautious about that because they wanna make sure the tariffs are real. Right? They stay there because that that that policy has been fluid. They don't wanna be the first person in their in their market space to raise prices because they might lose market share to their competitors. So they've been careful about that. But they're facing this this kind of data. They have no choice. They're going to have to do that. There's another slide. I think it's the next one, US government data on the producer price index. Yeah. That's right. So what we you know, the so called factory gate price, the far right hand side of this chart shows that in total, intermediate this is a producer price index for intermediate goods. So this is the stuff we buy in supply chain. These are unprocessed goods. So think raw materials, ingredients, components, is increased by over 20% since twelve months ago. Now people the the really, astute folks out there might be asking, well, what about energy? Because energy is up dramatically, especially since the advent of the the war in Iran. Energy is up 48% year over year. But if you strip out energy, prices are still up 19.8% on a twelve month basis. That's unsustainable. When I talked about being responsible for margins, when you feel you know, you got across the board 20% price increases in your supply chain, that eats your margin. Most companies do not have a 20% operating margin on their products they sell off. So we have to figure this out. And the and the one way to do that right now is to pass these cost increases onto your customers. So that's coming. No doubt about it. Sure. Thank you. Thomas, great great start. James, I guess over to you. First, perma crisis, your take on it, and and I guess, where where you stand in terms of of the kind of economic realities of here and now and and what supply supply chain risk managers should be should be aware of and should be appreciating. Well, I think the the the environment today requires a broader lens for supply chain managers to look through. And. that means people are going to be evaluating data and inputs that they are very familiar with and they have been looking at for a long time, and then newer things. So a supply chain risk manager who's not familiar with each of the pieces that Thomas just went through really should be. Most are probably aware of it, but people, for instance, who are newer into the field, may not. be familiar with all of these elements. But there's also a challenge in being a sort of prognosticator these days of where things are going because these numbers have been relatively consistent. You saw, for instance, one of these numbers were on week 107 of increases in prices and so forth. But when you look at some of the inflation numbers, some of the unemployment numbers, some of the jobs numbers, they are going up and down in a given month more than you would see historically. And so they are giving signals, and they're giving some false signals, and they're giving some clouded signals. Also, there's a tendency for people to look at what's happening in the stock market and, particularly the, you know, both the Nasdaq and, you know, and the and the, you know, a variety of other indexes, the Dow. And looking at that and saying, well, if it's up, things are good. Right. And it is very much a false it's it's not a it's not a false signal, but it is a misleading red herring in a lot of ways because it's really only tracking, a small group of companies, and they are the public companies. And private companies are the ones that are most affected by these factors that Thomas just walked through, and they're the ones that don't have any public market signal to evaluate. So smaller companies, middle market companies, and private companies are the ones that are, the bulk of most people's supply chains and the ones that are as reflected in the more publicly available numbers. So you need to be looking at all of these different signals. The the final thing I'll say on this is, you know, Thomas mentioned bankruptcy rates. Bankruptcy rates have been going up for now, you know, the last two plus years. Mhmm. And there'll be a lot of discussion on whether bankruptcy in the second half of twenty six is higher than the '26 and how that looks year over year and so forth. But bankruptcy is at its highest rate in the last fifteen to sixteen years. But even more importantly than that, underneath those numbers are the fact that more companies than have than in any recent memory are restructuring debt ahead of bankruptcy to forestall bankruptcy. And they're doing that at about a two to one rate to bankruptcies, whereas a normal environment would be more like one to one. So these corporate restructurings are something that's happening in the banking space, the private credit space, and are, are understating ultimately the bankruptcy numbers. So when a company is affected by all of these, price and macroeconomic and financial health factors, they may need to proactively negotiate with their creditors to do something so they don't have to file for bankruptcy. So anyone in supply chain or procurement that is thinking about bankruptcy itself, just bankruptcy, how many suppliers have gone bankrupt versus how many haven't, that in and of itself is now, in this market, an insufficient way to think about the impact in your supply chain. Okay. Thank you. So, I mean, you you you talked about financial health. Supplier financial health has has obviously become a major focus area. James, carrying on with you, if if I may, why is it such a critical indicator of of supply chain resilience today? And I guess what are the kind of key takeaways about current financial health trends, for for our audience? So financial health is an underpinning element of how well positioned the company is to meet all of its obligations. Those obligations, of course, one is purely financial. And so thinking about whether suppliers are financially healthy or not is extremely important in its own right. But a lot of a lot of businesses and supply chain orgs historically have organized themselves in these silos where someone is looking at the financial risk of suppliers and other people are looking at other things. Cybersecurity risk, ESG, Mhmm. various governance factors, obviously, more traditional things like quality and delivery. But, ultimately, a company and its financial health is going to be a leading indicator of whether it is able to satisfy deteriorating, they have to do something operationally to address the shortfalls that they have in cash flow or to address the debt service that they have if they have, if they've borrowed money. And this. all leads to the constraining of parts of their business, which will flow down to their customers in some way or another. And that can be that they are not investing in cybersecurity as much as they could be or should be. It may mean that they're delaying the investment in new product developments or research and development, innovation. They may become a lesser partner in those things silently. So a supply chain owner might not know that, but it is actually happening to them and they're being their their own product road map is drifting because of it. It can be that, they are, doing less quality assurance internally, so quality problems will flow downhill and, downstream and ultimately create reputational risk and other problems for the enterprise buying from. So all of this is extremely important, to think about and to manage actively. What we're seeing, in our data, and we've rated about close to a half a million created close to a half a million private ratings from over a 160 countries by. going out and getting the financial statements of those private companies for our for our enterprise clients. So, and with our clients spanning 25, 26 different industries, we see very deeply or we we see upstream into lots of different sub industries and how those suppliers are evolving. And what we've been seeing over the last few years is really concerning. There there there's a phrase used in economics, and people are talking about focus more on on consumers, talking about a k shaped economy where things have split. So you've got the the people who are doing really well and the people who aren't doing well. But the same exact thing is happening in the corporate world where you've got companies that are doing very well. They tend to be the public companies, the larger ones. And then you've got companies that aren't doing as well, and they tend to be the middle market and the private companies because they're the shock absorbers for supply chains. So when you just. look at this period from 2019, so basically year end 2019 is the beginning of COVID, so the beginning of the crisis, through to the end of this last year, we see, financial health degradation of private companies at a rate that is alarmingly faster and greater than public larger counterparties. So on the left here, you see public companies, 19 to 25. And on the right, you see private companies in that middle market, 100 to $750,000,000 in revenue. Our 100 rating scale has five risk categories. So the red and the orange here are represented, it's basically 40 and below, and, that's where well over 90% of companies that have failed in the last twenty years have existed. So when you look at this and see that we are up to 35% of private companies in the space being in that high risk zone, which is double, over double what it is for public companies, that is a good representation of the challenge that everyone has when dealing with lots of private companies. And. roughly 75% of most supply chains are made up of private companies. So this is a, this is a snippet from a report that is going to come out in the next week or so from an asset manager hedge fund called Marbledgate that we've done studies with over the last couple of years. And we won't get into all of this except to just orient any of the audience members to, are looking at the '19, beginning of COVID to, to '25, looking at the middle market versus public. And if you just take that those two columns on the left in the 2025, period, you can see on all of these financial measures, EBITDA, so operating profit, operating profit margins, net profit after tax, total liabilities. And if you look at the difference between the private companies and the public companies, it's radical. So a deterioration over the last, five years of 42% operating profit for private companies versus, significant improvement in public companies. You look at the difference between that, EBITDA and net profit. One of the biggest probably the biggest contributing factor to the difference between those two is interest expense. And interest expense is higher because interest rates are higher, and most private companies borrow on a floating rate basis. So leverage being up almost 200%, having interest coverage down, over 75%, relative to Publix. These are all indications that private companies are being squeezed. They're deteriorating from a financial health perspective. They're having to borrow more to make up for the operating cash shortfalls that they've got, and their ability to service that debt is decreasing. So over a quarter of companies in this group have less than one times interest coverage, which means they can't cover their interest for a year. And these are companies that are embedded all over supply chains. So this is this is important stuff to keep in mind. And, just as a as a quick example, looking at the automotive space, which is, of course, a a bellwether for, you know, for so many. When we look. at automotive sorry. When we look at automotive, we see the this playing out where the private companies have deteriorated. Even just in the last couple of years, have deteriorated to where 27% increase in those high risk and very high risk compared to only 3.4 on the on the public companies. And when we have stress tested different industries, like the aerospace and defense, where you would say, well, aerospace and defense in a war environment is going to be doing really well, what we find is the added business, the increased manufacturing needs and pressure on those companies, is actually increasing, under a stressed environment, is increasing the high risk and the very high risk category by close to 40%. So even in industries that are doing well, this is a challenge. And this is just showing in a couple of metrics or a few metrics, profitability, liquidity, and and leverage. The difference between low risk companies and high risk companies is really quite material. James, thank you. Thomas. Yep. Yeah. Well, I think, you know, if I were, a member of the audience thinking about how does this apply to my company, I would first thing I would say is, well, I don't think my supply base is in is in that kind of distress. And I I would challenge that assumption and say, there are examples undoubtedly in your supply base. You just need to go find them. You haven't maybe looked yet, and ask those tough questions. And just to make a kind of a homey point about the the point that James just made that I think is important. If you think about what James described from a company perspective, let me just translate that to me as an individual. I'm living now paycheck to paycheck, and and with each paycheck, I can only pay the minimum amount due on my credit card. I'm not reducing the actual debt level. That's not a sustainable place for me as an individual, and it's equally true for companies. They're they're they're in a in a situation. We've I think, we're unaware of the amount of stress that exists in that supply base. We're gonna get in some details, about that. And we you need to be asking those questions, if you're if you're not asking those questions. And, this the one thing that remains true about supply chains in general, supply ecosystems, is we they tend to be highly consolidated. We tend to rely on strategic or sole source suppliers in many cases. Now if one of your strategic or sole source suppliers happens to be one of the firms that James is describing, and they're under extreme financial distress, you are very exposed as a company. We call this a nexus supplier in in the academic literature. It means that, a single industry often is is relying on a on a on one company that is a common supplier across in the automotive example, it might be, transmissions, let's say. And but most of us are relying on a single a single company to provide transmissions. And if that transmission manufacturer is feeling this kind of stress, I all whole product lines could be, you know, unavailable. I mean, I'm I'm making up a hypothetical example. Ford's best selling vehicle is an f one fifty. You think they can't get transmissions for that truck? Ford's in a lot of trouble. Right? And and that's how, systemically vulnerable these companies can be. And it's it's important that you'd be thinking about these considerations. It's also true that in the era of permacrisis, we we went from a a period of time when, you know, the common metaphor was we're playing whack a mole. This week, it's a bankruptcy. This next week, it's a fire in a factory. Third week, it's a safety incident. Fourth week, it's a it's a quality incident someplace. Well, okay. Whack a mole, first of all, no one likes to play that. You know, that's that's tough. But what we need to do is get beyond that just reacting to situations that develop and get ahead of them, and that requires a different mindset. It requires, an ability to be more deconsolidated in your supply chain. I it would be my high hypothesis there, my my, my my thesis. And and, and think about managing risk not reactively, which is typically what we're doing, typically what we have done, and be more proactive. I'll just I'll end with this one small example to make this point. Most procurement teams are dealing with massive levels of managed spend on multiyear contracts. In any given year, they could literally have billions of dollars of of spend up for renegotiation. They'll get a mandate from the CFO that says, reduce our our contractual obligations by four or 5%. They'll spend 80 to 90% of their bandwidth in that given year undoubtedly achieving that cost savings of four or 5%. Otherwise, you're out of work. Right? You're you're you're no longer employed. But that consumes all of that bandwidth. They only have 10% of the remaining bandwidth to deal with these crises, and they're and they're reacting to the crises. I would suggest we need to change the operating model to, not react to events as they unfold in this era of permit crisis, but to have anticipated them already and have contingency plans in place. We can get out to what that might look like later, but, that's the mindset shift that I think is beginning to people are realizing a mindset shift is needed, and they're now in the stage of figuring out what does that actually mean in terms of my operating model. and supply chain. Thank you, Thomas. You know, And and, Thomas, we'll we'll come on to that. Thomas, I think, James. Go ahead. a lot of the, a lot of our, conversations and a lot of the focus of supply chain folks on these topics also surround direct suppliers. But it's important to note that every one of these topics we're talking about, every one of these influences, impacts indirect supply as well. And particularly with, inflation hitting employment numbers and obviously energy being significantly increased because of the war. All of the infrastructure for a company that is considered indirect spend, things to, you know, facilities management and waste management and packaging and travel and entertainment costs. You know, all of these things, while less important from a, you know, from a production line standpoint, are very much a large part of the spend on a percentage basis for companies, and they're being impacted by all of these factors as well. So I just wanted to wanted to flag that. Yeah. I I think that's right, James. I mean, it it's a kind of a nowhere to hide scenario. It's not that I'm just experiencing, price increases in the commodities I buy, which is alright. We can look for offsets elsewhere in the business, but I'm paying more for transportation. Right? I'm paying more to to run my warehouse, for instance. I'm tapping and the services side of the economy, for sure, I'm having to pay my people more as a result of that. So where do I where do I find, you know, the operating leverage? Well, right now, the answer basically is I have to to increase prices. During the pandemic, we saw a very unusual sort of behavior where people were accepting price increases because everyone understood inflation was real. And I think we're back to that situation now where people are gonna be price takers because there's the the companies that they're buying from, their suppliers, have no have got nowhere to return, right, to make up other than I have to increase my prices. Now undoubtedly, supply chain teams, procurement teams will push back a little bit and look and wanna see the evidence of why those price increases are pushed through. And that that's just they're doing their job when they do that. But, they'll they'll find that the the this this is where their suppliers are living right now, and and, they're gonna have to take those price increases. Thank you. Thank you, guys. Fascinating, and and and what a discussion to dive into. I'm sure there'll be some questions at the end. I want to make sure we we leave some time for those. I mean, Thomas, to to pick up on your point there about, mind mindset shift, anticipating rather than, I guess, being reactive, I suppose looking ahead and and looking where we are now and the things we've discussed, bearing in mind everything we we've talked about, where would you say companies are still kind of underestimating the reality of operating in today's environment? And and how, for example, for for for someone watching or listening, do do you go about beginning that mindset shift, beginning to look more proactive? Maybe you can. start off on that. one. I'm happy to. I mean, we're we're gonna talk touch on inventories right now, which is directly relevant to your question, Yeah. Matt. Historically, you know, this is going back to the nineties. We operated in a sort of just in time inventory environment. You want want I mean, at Whirlpool here, which is an appliance manufacturer in The United States, the truck would show up on one end of the factory. The stuff would go right into the line. Appliances would be made, and it would load it on a truck on the other end of the factory and ship to the distribution center or retailer. And they would they really nailed it. But, during the pandemic and more recently because of disruptions, in the environment that we're currently living in, people have bulked up on inventories. We saw a massive surge of inventories into The United States, in anticipation of the imposition of tariffs by the Trump administration. Those have been largely worked off now. That was one example. As as I mentioned earlier, there's an indication in data right now that companies are building inventories in anticipation of higher prices moving through the supply chain. That only makes sense. But that's a that's a expensive and not very efficient way to manage risk. It means in the short run, I don't have that work in process inventory sitting in my warehouse that I can't ship. That that's a good thing. But my working capital costs are higher, and the data from RapidRatings talks about the cash conversion cycle deteriorating for most companies, especially these mid market and smaller private companies we've been talking about and focusing on. That's a real problem. I can do that in the short run, but it's not a long term solution. So, a way to perhaps deal with inventories going forward might be to, work with a an array of suppliers, right, which again would be, anathema in the old supply chain days. You know, it's it's about consolidate your spend, leverage your spend, get the lowest cost per widget. In the current environment, a different strategy might be more appropriate. So why don't why don't you touch on the details of the cash conversion cycle, James, because I think this is very important for people to understand. Sure. Well, you know, the cash conversion cycle for I'm sure everyone on the on the call, you know, understands the, the concept. I think of it in terms of how quickly is the company able to take what it's doing and turn it into cash. And so it's a measure of, how long inventory is out by the number of days that it takes to receive payment and the number of days, it takes you have to pay for whatever your goods are. And what we've seen is, over this period of time, beginning of COVID till now, we're seeing that public companies have remained flat in their cash conversion cycle. But private companies have blown out by what, twenty six days. So almost an entire month longer to get paid for what you are shelling cash out for. That is a giant disproportional pressure on private companies upstream in a supply chain versus the companies downstream that they are selling to. And this visual, I think, is is is really is really powerful when thinking about the fact that public companies are essentially being paid before they have to pay. Whereas private middle market companies are having to pay before they get paid. Just that conceptual difference at this level and this rate is really quite stunning. And so that means that inventory is being held in a different way and that working capital is being squeezed in these smaller companies. And, effectively, the smaller companies are funding their larger customers. That is not sustainable. And I think of this in terms of a spring that is being loaded with pressure going upstream into that middle market. And while the middle market has not had as easy a time passing that pain back up into their smaller suppliers, the pressure is on both sides of this middle market group. And we all know that energy eventually needs to be released. And it is. going to be released probably in both directions, which means the larger enterprises are going to get more costs passed through. They're going to have to be more accommodating in one way or another of the working capital needs of these private companies. And upstream, the even smaller companies are going to have more pressure to be paid later. And so this cash conversion cycle will get worse going upstream. These are factors that most people are not paying close attention to because they're not looking necessarily at these elements when doing their QBRs and their EBRs with their suppliers or trying to understand what their own payment terms with a supplier looks like relative to that supplier's cash conversion cycle. And these are things that the more mature supply chain risk orgs that we work with are now doing and doing as fast and furiously as they possibly can. It also helps them themselves with working capital efficiency because a large enterprise can look for the stronger suppliers who can handle the longer payment terms, possibly in return for more business or other accommodations, or bring them into supply chain finance programs or other factoring arrangements that can be made to give cash flow relief or working capital relief to these to these businesses. So this is an area that the more mature organizations are definitely paying more attention to and thinking about not just on a supplier by supplier basis, but on a portfolio basis. Thinking about suppliers, you know, all suppliers in a region to a SKU, managed by commodity, whatever it may be, but really understanding how these risks are changing. You know, James, reflecting on your comment there, it occurs to me that one way to maybe think about this is that these middle market companies are actually providing liquidity to their customers. Exactly. And and and the larger customers may not even be intentionally aware of that. And if if there's if this distress is realized that we anticipate will be in the middle market, that source of liquidity goes away. So even. public companies are exposed in this this I love this metaphor of the compressed spring. So even the companies that appear to be doing quite well right now, they are they're exposed because of the pressures that they're imposing into their supply base. It's it's a it's a it's a very good insight. Well, in in in a in a perfectly efficient world, which we know we're not in, but in a perfectly efficient world, more public company investors, institutional investors and larger retail, would be asking these questions of the CEOs and the CFOs of the public companies during earnings calls. Do they know what pressures exist and ask very specific questions about how their supply chain teams and procurement teams are managing these problems? And when that happens more, and it will happen more, it will bring more focus, from the finance orbs and from board levels and the full c suite to supply chains and give them more, endorsement, more budget, more support, more mandate to do all of these things. So that has to happen, and it is happening more. But it's an area where we're going to see more supply chain and procurement connectivity to both operate at the board, but also into the finance organizations as all of this becomes more becomes more real. And hopefully, it becomes more real due to people being proactive as opposed to being reactive to the blow ups that are going to happen. Yeah. We we promised to touch on the idea of execution certainty, and I'm I'm gonna bring it up in the in the in this you know, talking about inventory levels. A lot of public companies are actually using the actual phrase execution certainty, as a as a and describing it as a strategy. What that what that really boils down to is we're carrying more inventory. This is true in apparel. It's true in semiconductors. So, you know, I mentioned two examples that I'm I'm familiar with. And there are there are risks with this idea of execution certainty. I mean, it's comforting to investors that, okay, we're protecting revenue. We're protecting profit in the short term. In the case of the the apparel company, it meant that they also carried inventory that they weren't able to sell that underestimated demand. Rather, they overestimated demand, and they were left with unsold goods. They had to sell at at markdowns. Right? And so execution certainly actually compressed margins. So the idea. of execution certainly sounds attractive, but it comes with its own set of risks, and we have to be aware of those. James, Thomas, thank you. Fantastic. It's such a deep conversation. I feel there'll be lots of questions. We have a few that have come in. So, quick fire hats on, and and we'll work through a couple if we can to make sure we stay within time. The first one we have, open forum, whoever wants to to take an answer. How should organizations prioritize which resilience levers matter most? Maybe a a quick answer for both of you. Well, a a a common mistake that, from a risk perspective of supply chain is to ignore what are apparently low levels of spend. Don't do that. Mhmm. The the there's a an example in pharmaceuticals where, a coating on a tablet was, you know, inconsequential in terms of the the spend of the company, but it supported $2,000,000,000 in revenues. Without that coating, they cannot sell the product. So don't ignore what appears just just don't segment by level of spend. Mhmm. Think about your risk from the the how much revenue in sales am I supporting? And then then look at your risk from that perspective. Yeah. No. I I agree. And I'd I'd phrase it as criticality is not necessarily spent. Right? So criticality can be measured in lots of different ways. For me, the the most important, the most important thing for for groups to do is to share information and have a mandate that information in different risk domains is shared and coordinated. Because a problem in financial health will be a leading indicator of these other problems. And a, you know, those responsible for cyber are going to be more focused if they've gotten a tip-off that there's financial health degradation in an individual supplier. So you can't silo anymore, and you have to be looking at all of these risks, but you can't rely on old ways of doing things, old tooling. The the one that, that is common in our space is, you know, people using payment data, payment scores as a proxy for financial risk and financial health. And companies that are failing will pay their bills, the primary bills, all the way until they file for bankruptcy. Or by the time you start to see problems in how they're paying their bills, you've been affected for a year or more, and you don't even know it. So you've got to be looking at financial health, and you've got to be collaborating and getting data financial data from the private suppliers in particular in order to do that. James, Thomas, we are out of time. I I I sense this is a conversation that we could talk in length that. Thank you so much. It's been fascinating. And thank you to everybody who has joined us today. I think you can join us all in thanking Thomas and James for sharing their insights and perspectives. I guess if there's one clear theme from today's conversation, it's that supply chain performance isn't just defined purely by efficiency anymore, but rather execution under uncertainty, the ability to maintain stability in a constantly shifting environment, and this word, permacrisis. Thank you again so much. The recording will be available shortly so you can revisit the discussion, share it with your teams, have another watch. Thank you for joining us all, and we look forward to seeing you on the next one. Thank you. Thanks all. Thank you, Ben. Thank you, you, Matt. guys.