SCF: creating competitive advantage

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Supply chain finance is growing at the rate of 30 – 40 per cent a year at major international banks, according to services group Demica which has just completed a  survey of banks across Europe, the US, Asia, Australasia and Africa.

The study found that the main drivers of this growth are what you might expect: the provision of liquidity to suppliers, working capital optimisation, and enabling payment discounts and cheaper financing costs for suppliers.

But it is also clear from comments made by the financiers that SCF can help build relationships in the supply chain. One financier pointed out that many suppliers really appreciate the strategic support provided by a buyer that offers a supply chain finance scheme, while another suggested that it increased the attractiveness of supplying to one particular company.

At the height of the recession, supply chain finance played a vital role in ensuring that some suppliers did not simply run out of cash. But, here is evidence that the reasons for making use of it are changing.

The survey suggested that the highest growth in SCF has been coming from the US and western Europe – notably the UK and Germany. But the top three regions with future SCF potential are, not entirely surprisingly Eastern Europe, India and China.

While the market is not expected maintain growth rates of 30-40 per cent, it is expected to expected to continue to expand strongly with annual rates of 20-30 per cent by 2015, and ten per cent by 2020.

The growth of increasingly diversified and complex supply chains is opening new opportunities to create competitive advantage. And an organisation that can bind suppliers to it with an attractive SCF package, could reap some real benefits in terms of security of supply and quality of service.

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