2. POINTS TO DISCUSS
• A NEW OPPORTUNITY FOR SUPPLY CHAIN FINANCE
• SUPPLY CHAIN FINANCE ACTORS
3. Meaning of Supply Chain Finance
Supply chain finance (SCF) is a term describing a set of technology-based solutions
that aim to lower financing costs and improve business efficiency for buyers and
sellers linked in a sales transaction.
SCF methodologies work by automating transactions and tracking invoice approval
and settlement processes, from initiation to completion. Under this paradigm, buyers
agree to approve their suppliers' invoices for financing by a bank or other outside
financier--often referred to as "factors."
And by providing short-term credit that optimizes working capital and
provides liquidity to both parties, SCF offers distinct advantages to all participants.
While suppliers gain quicker access to money they are owed, buyers get more time to
pay off their balances. On either side of the equation, the parties can use the cash on
hand for other projects to keep their respective operations running smoothy.
4. Example
A typical extended payables transaction works as follows: Let’s say the buyer,
Company ABC, purchases goods from the seller, Supplier XYZ. Under traditional
circumstances, Supplier XYZ ships the goods, then submits an invoice to Company
ABC, which approves the payment on standard credit terms of 30 days.
But if Supplier XYZ is in dire need of cash, it may request immediate payment, at a
discount, from Company ABC's affiliated financial institution. If this is granted, that
financial institution issues payment to Supplier XYZ, and in turn, extends the
payment period for Company ABC, for an additional further 30 days, for a total
credit term of 60 days, rather than the 30 days mandated by Supplier XYZ.
https://www.dbs.com/in/sme/trade/supply-chain-financing/supply-chain-
finance#:~:text=DBS%20Digital%20Supply%20Chain%20Financing%20helps%20free
%20up%20cash%20trapped,and%20Sales%20(Distributor%20Finance)
.
5. A New Opportunity for Supply Chain Finance
• Organizing resource flows in the production and sale of goods has been the
domain of supply chain management since the early days of mass production and
distribution. The financing of input purchases, labor, and other elements of
production and distribution all come from internal resources or external working
capital funding (unless the buyer pays prior to production).
• Advancements in information technology have enabled the growth and
complexity of supply chains and created opportunities for specialization and
scale. These same technologies can also be leveraged to assess risk and enable
financial service providers to extend financing to an increasingly wide range of
actors along the supply chain.
• https://www.netsuite.com/portal/resource/articles/erp/digital-supply-
chain.shtml
6. Cont..
• Digital finance is expanding opportunities by increasing access to working
capital. Cross-border supply chain finance platforms connect funders to
MSME suppliers and give them access to alternative lending structures,
such as dynamic discounting, factoring and payables financing.
• Advancements in analytics and machine learning enables platforms to
innovate in financing decision making and pricing. Meanwhile, the Internet
of Things provides a constant data stream of shipping routes, storage
methods, and more.
• Taken together, AI-enabled financing helps traders ease the uncertainty of
inventory management and solve for payment risks faster and with more
transparency, while giving funders a short-term, flexible asset class for risk
mitigation and diversification.
7.
8.
9. Cont…
• Supply chain finance consists of the provision of credit linked to open
account transactions between a seller and a buyer, where the sale happens
through the submission of an invoice and without a guarantee of a third
party, a contract, or an immediate payment
• Supply chain finance is typically associated with trade finance (i.e., the
financing of transactions across national borders where options for
recourse are fewer and more difficult to enforce). With trade finance,
partnering financial institutions may step in to undertake risk on behalf of
clients they know well, serving as a surrogate source of trust among
established bank networks, and enabling the transaction to take place
10.
11. Collaborative supply chain
Competitive pressures and customer expectations are pushing
organizations to address two factors governing the performance of the
supply chain: speed and variability. Speed, in this case, is a company’s
ability to keep pace with continuously transforming market conditions,
varying customer expectations, customized product features, and
collaborative partner networks. Business partners have to agree upon the
following to build a solid, collaborative supply chain:
• Product
• TIME
• QUANTITY
• QUALITY
• COMPLEXITY
• SOURCE
• DELIVER
• PRICE
• COST
• SERVICE
12.
13.
14. Technologies Transforming Supply Chain
Finance
• Digital Infrastructure: Advances in infrastructure and software
architecture (e.g., standardization and inter-operable interfaces) have
enabled the growth of new types of services easily accessible by
financial institutions and supply-chain actors. This has implications for
communication, storage and management of information for
businesses and supply chain finance lenders. Businesses benefit from
the internet to access data from the cloud and managed services.
15. Cont..
• Standardization and Interfaces: With advances in internet access,
cloud computing, and managed services, the adoption of standard
methods of system interoperation is disrupting traditional banking
business models. These methods enable businesses to utilize multiple
third-party services in conjunction with their own systems while
limiting customization. This has cost-reduction ramifications and
therefore great scaling potential.
16. Cont..
3. Managed Services and Platforms: Cloud solutions, artificial intelligence,
the ‘Internet of Things’, and automation are all among the digital innovations
playing roles to reduce the costs of inefficiencies and leakage in logistics
management
4. Data Analytics: Data analytics presents a unique opportunity. Data are
samples of reality, recorded as measurements and stored as values. There
are many ways to encode information, but any piece of digitized information
converts things into numbers that can drive an analysis, thus serving as a
source of potential insight for operational value. As the use of digital
technology and smartphones expands in emerging markets, new data
sources become available.
17.
18. New Supply Chain Finance Entrants
https://www.gfmag.com/magazine/february-2023/worlds-
best-supply-chain-finance-providers-2023
22. Practice question
Calculate GOC and NOC in months with the help of the following information
Raw material consumption per year $ 36000
Avg. Raw material $ 12000
Avg. WIP inventory $ 48000
Cost of production $ 108000
Avg. FG Inventory $ 60000
Cost of good sold $ 120000
Avg. debtors $ 72000
Net credit sales $ 132000
Avg. creditors $ 12000
Net credit purchases $ 36000
23. Supply Chain Finance Actors
• The transformation of supply chains has increased the extent to
which positions and roles of particular businesses vary, depending on
the transaction and their supply chain. For instance, a car tire
producer can be a supplier to an anchor buyer/distributor in an
upstream transaction, while at the same time it can be a buyer in a
downstream transaction referring to an anchor distributor of natural
rubber or chemical compounds.
• Therefore, any exploration in supply chain finance should begin by
mapping the various actors across a particular chain and identifying
the role and position
