Supply Chain Finance Solutions

Abstract

Management Summary: With widespread coverage in the media, at conferences and in numerous articles in economy magazines, Supply Chain Finance (SCF) has become one of the hottest topics in business administration. SCF is not a recent concept. It has long been known as a significant part at the intersection of Supply Chain Management (SCM) and trade finance. What has changed during recent years is the decision of numerous companies to convert the approach and its opportunities into deliverable benefits. The rules of the game in trade finance have changed. With the latest credit crisis, companies see their supply chains threatened by a lack of liquidity. This cash dry-up makes corporates look to more tangible sources of financing their businesses. Financial institutions are increasingly responding to corporate demands to increase efficiency in their financial supply chains. With competition no longer among individual companies but among entire supply chains, every area of end-to-end cost reduction is being explored. Therefore, SCF solutions could help leading companies make their whole supply chain more competitive. Recent research seems to confirm that the credit crunch is driving the adoption of SCF. Both banks and corporates are keener than ever to make their scarce capital stretch as far as possible. The global economic crisis has resulted in reactions that are fueling the widespread adoption of SCF. The credit crunch is making buyers and suppliers deplete their cash positions. Whereas suppliers are trying to encourage their customers to pay earlier, buyers are increasing their payment terms. In an attempt to cope with these problems and fully utilize the value creation potential of a company's supply chain, SCF promises rewards. By taking a more holistic view of flows of trade, this approach focuses on collaboration between trading partners as well as the increased transparency, automation and dematerialization of the entire supply chain, thereby reducing overall costs and risks for all affiliated parties. SCF promises to enhance enterprise value because it decreases tied-up working capital and enables higher capital efficiency. Because of the novelty of SCF, there are still many research gaps. On the one hand, the lack of research leads to hesitation about the implementation of SCF solutions within companies because there is little quantified evidence about achievable cost savings and other potential benefits. On the other hand, there is very little information about the market potential for SCF solutions. This study aims at providing orientation within this new topic by investigating the need and nature as well as characteristics and enablers of SCF. Based on an exemplary SCF model, the worldwide market size for such solutions and potential cost savings to companies engaging in this area are analyzed and calculated. These underline the generally stated attractiveness of SCF solutions by creating win-win situations; for the affiliated actors in the end-to-end supply chain as well as for external service providers.