Nick Chen, worldwide commercial financing manager of Lenovo, has revealed that the company has ambitions to build its own supply chain finance platform, connecting buyers and suppliers to funding and based on blockchain technology.
Chen was speaking at the second annual SCF Forum Asia conference, held at the National University of Singapore in partnership with the Singapore Association of Corporate Treasurers, which gathered 140 treasurers, banks, fintec companies and academics under the theme of Next Generation Supply Chain Finance.
Chen had earlier outlined the company’s successful supplier finance programme, which saw the company’s Days Payable Outstanding (DPO) increase from 68 for Q2 in 2016/17 to 81 in the same quarter a year later, and its cash conversion cycle move from -5 to -14 over the same period. Among many factors that were essential to success, he said, was a ‘strong account manager’ within the partner bank – in this case, DBS – who could promote the programme within the bank and get things done quickly.
To build on its early success, said Chen, the company was now looking for a way to pull all its supplier financing together on one platform but had yet to find a tool that could do the job. The system being considered, he said, would need to handle reverse factoring and dynamic discounting on accounts payable, invoice discounting and factoring on accounts receivable and include other options such as inventory finance and pre-shipment or purchase order finance.
The day had started with an outline of some of the global trends affecting supply chain finance from Puay Guan Goh, associate professor at the National University of Singapore, who pointed out the increase in ‘near-shoring’ as multinationals brought manufacturing closer to home – something that a third of European companies said they were considering in a 2015 survey. This would, in itself, lead to shorter cash-to-cash cycles that, when combined with technology innovations, could transform the supply chain finance landscape.
Blockchain and supplier finance
Blockchain was a recurring theme, with short updates from SCF Community director Michiel Steeman on its use in smart contracts and inventory finance, as well as an early look at the Marco Polo project from David Sutter of TradeIX. The project involves multiple banks deploying an ‘open trade finance network’ based on open APIs and Corda distributed ledger technology. Asked how this would sit alongside existing bank networks, Sutter was clear: “Swift needs to do some real soul-searching right now”.
Edmund Ng of Singapore-based Nufin Data was equally sure that blockchain was where SCF technology is headed. Discussing the company’s Nemo cash management system, he also outlined its concept for its next-generation procure-to-pay (P2P) system.
Why treasury should be in charge
It was the afternoon panel session, held under the Chatham House Rule that raised the sometimes controversial issue of who should take charge of this fast-changing P2P landscape within the corporation. One treasurer for a well-known multinational was very clear that Treasury, not procurement, should be the leader in this process. In fact, he went further “Treasury should own procurement – I’m serious. You need one view of P2P and P2C processes and if we really want to develop the concept of the financial supply chain, treasury should be in the driving seat.’
Another agreed: ‘Treasury is the ultimate connector – we understand what’s happening in the business, from sales through legal. Treasurers are playing a larger role, getting that seat at the table’.
One audience member asked whether treasury teams were being given more resources as their role increases to include supplier finance programmes. ‘No’ was the short answer – boards like the results, but more investment wasn’t seen as a priority. Collaboration and partnership was the best solution to this problem.
China’s SCF landscape
With the cost of finance for Chinese SMEs being as high as 18% in some cases, the need for alternative sources of finance is just as great, if not greater, than in other economies, said Hongxing Yang, VP SCF at Haier Group. However, the country was a relative latecomer to SCF, with development really starting in 2006, at least two decades after the concept began in the West.
Since then, however, progress has been rapid, with the first independent third-party SCF providers arriving in 2014 and new home-grown solutions from companies such as LINO growing in sophistication (LINO was highly commended in the 2017 SCF Awards for its SCF solution for Qingdao University Hospital).
Yang outlined the dealer financing system already in place at Haier, under which a bank SCF provider finances the ordering of white goods by dealers, which are then released from the warehouse when deposits are paid.
A dealer finance system was also presented by Don Ri Yuen, channel finance director at Dell EMC, who gave the example of an Indian corporate customer which had gained access to $104m in additional liquidity freed up from working capital through the Dell programme.
In the final case study presentation, Amazon’s Lee Hicken gave a peek into a world in which every product – and component – has sensors attached so it can be tracked through the supply and distribution chains as part of the Internet of Things (IoT), while C2FO’s Jerry Dimos outlined Amazon’s supplier finance solution. Originally Amazon had looked at building its own, but eventually turned to C2FO, whose solution is itself hosted on Amazon’s web servers.
As the day drew to a close, the final panel saw Vijay Vashist, managing director and group head of treasury and working capital advisory & solutioning at DBS Bank, pick up the data-driven themes of the day and reveal that the bank is ‘focusing heavily’ on an Asia-wide solution for sharing and using data to support trade and supplier finance. Vashist’s comments came after an earlier presentation by Amit Agarwal, head of open account trade products at DBS, which had highlighted the bank’s work with Huawei and Tata Motors in developing supplier finance solutions – in Huawei’s case, reducing DSO to zero.
As the conference closed, conversations in the networking areas tuned to the 2019 conference, with a real feeling that supply chain finance is coming of age across the Asia region.