This year’s SCF Barometer again brings the Supply Chain Finance Community together with PwC to see what sort of picture emerges from a statistical survey of international business. It’s a picture that, I think, matches and reinforces the experience that SCF professionals gain in the field in their face-to-face dealings with corporates.
There are two broad brushstrokes on this painting. Firstly, SCF continues to grow, with more and more businesses coming to the realisation that SCF programmes have something significant to offer. It is clear from this survey that the raw numbers are growing, evident from the fact that such a significant proportion of this year’s survey sample have implemented SCF within the last year or two.
It’s particularly encouraging to see such a sizeable increase in the number of programmes where all suppliers are eligible to join, with a commensurate decline in programmes that are restricted to suppliers with a certain level of spend. For most buying organisations, SCF programmes currently encompass up to 20% of their total spend – but that seems certain to increase as programmes are rolled out and supplier size restrictions are removed.
What this Barometer also shows is that companies are not contentedly sitting there with static programmes. Instead, it gives signs that they are keeping their programmes under constant review, extending those that are working well and refining, replacing or supplementing those that are not by themselves helping the organisation achieve all its goals.
We know from our own dealings with corporates that those that get the taste for SCF soon realise that it can achieve more. We know, too, that the implementation decisions they make the first time they offer SCF to their suppliers may not turn out to be the optimal decisions. For example, they may learn that there is a bigger appetite amongst their suppliers for supply chain finance but that the platform they have chosen to implement is not the right one for a more extensive rollout – and so they look for other solutions as bolt-ons or replacements.
Beyond the mainstays
Allied to this is that there is a growing awareness of SCF tools beyond the mainstays of reverse factoring and dynamic discounting. Pre-shipment finance and inventory finance, for example, are tools with a considerable level of awareness among this year’s cohort of respondents, which bodes well for the future of these types of offerings and the opportunity to inject cash earlier into the supply chain.
Where we as supply chain finance professionals perhaps need to do some more work is in explaining that the benefits of supply chain finance go beyond working capital optimisation. For the vast majority of businesses, that remains the single most important reason for implementing SCF. For many, the liquidity needs of their suppliers is very much a secondary consideration, with supplier relationships and supply chain stability even further behind. It’s understandable that working capital should be the number one reason for implementing SCF – but these other benefits must be more fully appreciated if the right type of programme is to be offered to suppliers.
Work that we have done at Windesheim University with Taulia, for example, shows clearly that there are industries such as the automotive sector where DPO (days’ payables outstanding) is actually lower for businesses that offer SCF. Supplier relationships are crucial to success in this sector, and so something more akin to a win-win working capital strategy is adopted. Contrast that with the food and retail sector where relationships are typically more transactional and the buyer has a strong market position, enabling the major players to adopt a ‘squeeze’ strategy with SCF used primarily as a means of optimising their cash conversion cycle.
Later this month SCF Forum Europe will take place in Amsterdam and we’ll have our annual opportunity to gather together and discuss the current and future state of supply chain finance. The detailed findings of the Barometer will be presented there and I look forward to debating these important trend markers with fellow professionals from the corporate world, from finance providers and fintechs, and of course from leading business schools. I hope to see you there.
Luca Gelsomino from Windesheim University of Applied Sciences and Danny Siemes, head of the PwC Netherlands working capital management practice, will discuss the latest SCF Barometer at the SCF Forum Europe 2017, taking place in Amsterdam on Wednesday, 29th November at the Beurs Van Berlage.
See scf-forum.com for more information and to book your place.