Supply chain finance is one of those concepts and phrases that sound far more confusing to the uninitiated than it needs to. But since there aren't a lot of good resources to go and learn about it yet -- or consultants/analysts to call who have a solid understanding of the procurement, A/P, treasury and logistics changes it introduces -- I believe that it's important to take the time to educate yourself on the topic, especially considering the potential that supply chain finance brings to reduce costs and improve working capital management. Fortunately, World Trade Magazine recently published a useful backgrounder on the topic which suggests that "supply chain finance and logistics" are beginning to "converge onto a single management platform".
The article not only explains how supply chain finance works, it crosses the functional divide, getting past procurement, finance and trade silos. World Trade segments supply chain finance activities into four buckets: "automatic payments, supporting supplier discounts and buyer early payments, injecting credit into key points along the chain (pre-shipment, post-shipment, inventories), and a catch-all effort, 'integrating' the flows of goods, funds, and information.”
But why should this matter now? Different vendors quoted in the piece each have something to add about why the time is ripe for supply chain finance to become a household word. According to one provider, supply chain finance "makes it possible to support better cash management for both sides [buyers and suppliers]" -- a key requirement as companies stretch out payment terms and banks restrict credit access. Another suggests that "the credit crunch is a catalyst" encouraging companies to examine the opportunities for improving their credit use and cost structures making "it the perfect time to look at supply chain finance to manage cash and reduce risks". All in all, if you want to learn the basics about supply chain finance and just want to read a single article, this is probably the right place to start.
- Jason Busch