Finance – the new battleground in supply chain

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What is the fastest growing phenomenon in supply chain? We all know about the impact of online shopping on strategies, but even so, I think there is a good case to be made for supply chain finance – a recent study by Demica suggested that such schemes have been growing at the rate of 40 per cent a year and are set to continue growing – albeit at a slightly less frenetic rate.

What we call supply chain finance is generally based on reverse factoring schemes. In fact, leading analyst Enrico Camerinelli told delegates at the well attended Supply Chain Finance Summit in London this morning that we should also consider traditional factoring to be part of the SCF world.

Many traditional factoring organisations are now looking at extended their range of services to more sophisticated SCF schemes.

But to extend the value of supply chain finance to smaller suppliers particularly means moving into the area of pre-invoice finance.

This of course, is problematic for traditional suppliers such as banks as they have little or no visibility of the supply chain in question.

But that is starting to change, said Camerinelli.

A lot of work is now being done in the area of dynamic supply risk management – in particular there are organisations that are now building risk profiles to enable pre-invoice finance to be priced just as insurance companies price policies based on risk profiles. 

When such profiles are available, they could have a significant impact on liquidity in areas of the supply chain that are simply not reached at the moment. 

At the height of the recession, SCF took on a new significance in ensuring the liquidity (and in some cases the survival) of suppliers. But there are other factors coming into play. Camerinella highlighted the impact of the ethical element and the EU directive on late payments.

In particular, corporates could find themselves being ranked by suppliers in terms of ethical SCF. That could open up a whole new competition for the best suppliers based on not just on the price paid – but the finance solution on offer.

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