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6 May, 2022

Supply Chain Disruptions Impacting Financial Institutions

We’ve all seen the impact of supply chain disruptions. Whether you are thinking of buying a new car or dining room table, repairing your dishwasher, or getting a new set of golf clubs, you’re probably feeling the effects of supply chain disruptions. Supply chains are invisible to us when supplies are plentiful, even though they are ever-present. The clothes we wear, the food we put in our mouths, and the equipment we use to enable our work to depend on supply chain operations.

So, what’s the problem?

Manufacturers, transportation companies, distribution centers, etc., are all running on reduced capacity due to the shortage of workers. This, along with the distorted demand compared to typical amounts, creates shipping and trucking bottlenecks, and the supply chain problem is likely to worsen before it gets better. Therefore, here are a few considerations to avoid disruption in your institution.

Could you be down for a week?

A network switch failure discovered late in the day on a Wednesday had the potential to create lengthy down time due to the ongoing supply chain disruption for one community bank. Fortunately, Brian Cayton, Vice President, Director of Innovations and Operations at Community Bank of Parkersburg, had recently partnered with BankOnIT. While Brian made a handful of phone calls to various local IT vendors, none of them had the appropriate equipment in stock, and all of them said it would take a week or more due to supply chain issues. With 24/7/365 monitoring, BankOnIT technicians let Brian know that they had the equipment in stock, could configure it, and send both the equipment and a technician to his bank on a private charter flight so that the bank would be back up and operating the next morning – all at no additional cost.

“If we had not hired BankOnIT, or if they didn’t have this critical piece of equipment on hand, we would have been down for a week or more. They were a lifesaver for us.” - Brian Cayton, Vice President, Director of Innovations and Operations, Community Bank of Parkersburg.

What do Toilet Paper and Computer equipment have in common?

The answer, of course, is that both have been hard to find at various points throughout the pandemic. While toilet paper is more readily available today, computer equipment – and nearly everything that contains a computer chip – is becoming more and more difficult to find. There are several reasons for this. Initially, COVID-19 created manufacturing and shipping delays, limiting the availability of computer chips and other components. At the same time, Remote Work resulted in a significant increase in demand for everything from laptop computers to printers, microphones, and headsets, all of which contain chips. Additionally, a fire at a Japanese chip fabrication plant decreased supply. Today, the Chinese government’s zero-COVID policies limit production and reduce supply. Chip fabrication plants cost Billions to build and equip and are not built overnight.

With significant capital outlays to build, chip manufacturers are incented to produce high-end, high-margin chips – not the chips found in standard consumer electronics.

Should I Stock Up?

Unlike toilet paper, computer equipment is expensive to buy and hold, plus it rapidly becomes obsolete. For this reason, it makes more sense to ask the vendors you rely upon about the depth of critical equipment supplies. Do they have excess equipment in stock and available without depending on acquiring the equipment from others? And then ask yourself if their answer represents an acceptable level of risk for your institution.

What other Supply Chain Risks are Present?

Each supply chain risk you face – hard to find laptops, delays in buying servers, long lead time for network equipment – impacts your institution’s ability to open new locations, install new technology (such ITMs), install new phone systems, and complete M&A opportunities in a timely manner.

Credit risk is also increased. The delay in replacing failed equipment may create downtime for your commercial borrowers and adversely impact their cash flow. In particularly sensitive industries, like manufacturing, a lack of availability may limit your client’s ability to replace aging equipment and systems and expand their business. Each supply chain risk you face is also impacting your biggest borrowers.

BankOnIT welcomes you to schedule a 30-minute discovery session to help determine whether your current IT set-up is protected from supply chain disruptions and ready to take your institution to its next growth milestone.

Contact us to learn more.

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Disclaimer

This publication attempts to provide timely and accurate information concerning the subjects discussed. It is furnished with the understanding that it does not provide legal or other professional services. If legal or other expert assistance is required, the services of a qualified professional should be obtained.

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