THE CHAIN IS ONLY AS STRONG AS ITS WEAKEST LINK
The strategic reasons are starting to have much more weight than the operational ones when large purchasing corporations are considering whether to start a supply chain finance program, according to Michiel Steeman, Professor of Supply Chain Finance at Windesheim University.
“The operational benefit of improved working capital is a given, as are the savings on operational costs gained for example through increased automation in invoicing processes. But the buyers are now looking especially to create real financial stability for their suppliers, to avoid losing them to bankruptcy, of course, and also to ensure that they have the financial capacity to grow along with them, if needed.”
It is also an issue of supplier loyalty, and in some cases even provides a competitive edge, as the suppliers are more keen to work with a purchaser who offers financial cooperation.
“In addition, the corporate social responsibility argument will be heard more often in the future,” says Steeman. For example in the UK, some big buyers are already supporting their communities by offering supply chain finance to their local suppliers. Supply chain finance is also gaining ground in the developing countries, where these types of financial tools are used to support the suppliers’ investments in equipment, for example.
Steeman says one of the stumbling blocks can be mistrust. Small suppliers may fear the new finance solution is just a way to impose even longer payment terms and to limit the available payment methods.
“A supply chain finance program can only be successful if it is implemented in true collaboration. It truly is a win-win solution at its core, or even a win-win-win if you also consider the third party financier’s business activities.”
READ MORE Supply chain finance ends the tug-of-war over working capital [add a link to the Journal article file “Journal-1-2015-SCF-Steeman-web”]