There are many situations where supply chain finance has been successfully implemented at a technical level in the organisation but there are very few suppliers registered with the scheme. This often happens when procurement do not understand the full strategic value of supply chain finance. In fact, many procurement professionals will openly express their dislike of such schemes because they believe that they limit procurement’s ability to negotiate on price or discounts.
While there are numerous arguments for and against this position (mostly ‘against’ for those who have successfully onboarded suppliers to supply chain finance schemes), this view takes no account of the longer term strategic situation. In the short-term, procurement departments are mainly measured on their ability to gain cost reductions from the supply base year on year. If the supplier cannot invest in their own efficiency of operations, then, in the longer term, further price reductions will reduce their own gross margins.
This is a spiral to insolvency. Eventually the supplier’s margins will be so tight that if one supply chain factor changes dramatically (eg, the oil prices, currency rates) then that business will be in big trouble.
This is where supply chain finance can have a very important part to play. If the same supplier is part of such a scheme, then they will have more cash to invest in their own business. That will allow the supplier to offer price reductions while also increasing their own margins. This means that procurement departments can achieve and sustain cost reductions from a financially-stable supply chain. That has to make more sense than a negative short-term approach.