This year for the first time, the Professor of Supply Chain Finance at Windesheim University in the Netherlands was asked to organise a special session on supply chain finance at the Annual Global Supply Chain Excellence Summit. This renowned event is organised by the University of Southern California Marshall School of Business at their beautiful Los Angeles-based campus and yearly attracts over 400 attendees, with representatives from leading corporations across all kinds of industries.
Over the two days, thought leaders from industry and academia inspire and inform these supply chain professionals by sharing the latest insights, new developments and practical learnings, covering a wide range of themes. Besides the obvious hot topics such as big data, omni-channel, supply chain talent management and block chain technology, there was a lot of interest in the financial aspects of supply chain management: the recent crisis at Hanjin Shipping was referred to many times, and made clear that your supply chain partners’ financial problems can have an immediate impact on your company’s performance. Not surprisingly, the special panel on supply chain finance, led by Prof Michiel Steeman of Windesheim University, brought much energy and interaction and had a high turnout.
The session started with a brief presentation by Ronald de Boer (associate professor SCF, Windesheim), who made clear that the financial flow in supply chain management always interacts with the physical and information flows, and as such cannot be managed in isolation. The fact that high-performing companies show increased business partnering between supply chain leaders and CFOs underlines this reality.
Next, he introduced SCF as the optimisation of financial flows, requiring collaboration of at least two supply chain partners, with the aim to reduce risk or increase performance, supported by a wide landscape of possible SCF solutions.
Mr Brahmkshatri from the Walt Disney Company told that organisation is striving to reduce the number of suppliers by concentrating on those that have Walt Disney as their customer of choice. However, in a capital-intensive industry that is highly-dependent on innovation, such a strategy requires new collaborative financial agreements to ensure these suppliers have enough liquidity to remain healthy. A lively discussion, with much interaction with the audience followed: ‘Is SCF not simply a way that big companies misuse their power to improve their cash flows at the expense of suppliers?’
Caroline Brown (Bank of America), made clear that reverse factoring, one of the most used SCF solutions, enables suppliers to receive payment within 5-15 days, at a very attractive rate, while at the same time improving the net working capital position of the buyer. When the discussion moved to risk, it became clear that SCF can be an effective tool in managing and reducing risk: if suppliers get their money more quickly, they not only save on working capital financing cost, but also on insurance and hedging cost (in the event of currency risk). Successful and sustainable SCF implementations are always based on relationships where all cooperating parties benefit.
Post-shipment, invoice-based SCF platforms such as reverse factoring and dynamic discounting are gaining higher rates of adoption: research indicates that, today, half of the Forbes 1500 largest corporations adopted one of these tools. There is, therefore, plenty of room for more innovative SCF solutions. Prof Steeman explained how Heineken developed a model enabling significant savings on cost of goods sold, via a barley inventory finance solution. In this way, the credit worthiness of Heineken is leveraged to reduce the high cost of capital of the tier 2 supplier.
Markus Ament (Taulia) explained that there is also still room for improvement with SCF instruments targeting tier 1 supplier: traditional supplier finance platforms often show little flexibility and require much time to onboard suppliers. New fintech companies offer platforms with much easier and faster onboarding – and are bank-independent.
Len Zhu (USC Marshall Business School) explained that the growth of trade with Asian countries, combined with increased automation and technological innovation, offer much opportunity for SCF in the coming years.
Prof Steeman concluded the session by saying that – despite the fact that there are still several challenges in SCF, such as supplier onboarding efficiency, standardisation between providers and accountancy guideline transparency – it offers significant competitive advantage and as such should be an essential weapon in every supply chain leader’s arsenal.
The 4th Annual Global Supply Chain Excellence Summit was held on 15th -16th September at the University of Southern California Marshall School of Business in Los Angeles