Supply Chain Finance an Engine of Growth for the Automotive Industry

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Trade Financing Matters welcomes this Guest Post from Michel Kilzi, Managing Director UbiQ Innovations

Industry Challenges

The supply chain in the automotive industry is very complex. On average over 20,000 different parts go into the production of a vehicle, any delay or disruption in part supply will delay production. Automotive supply chains are a complicated process that requires excellent coordination between external and internal business functions.

In many countries such as Turkey there are several regulatory and taxation obstacles that plague the OEM automotive industry causing lack of growth and delays in production and delivery which proves to be problematic since OEMs have to achieve excellence in Supply Chain Management to enter new global markets, which requires significant restructuring and investments in every process.

When it comes to optimizing working capital, the industry faces a wide range of strategic challenges. For example, supply chains are becoming increasingly global, creating longer lead times and adding vulnerability to business disruptions. Product complexity is also on the rise, adding both risk and R&D cost to the mix. This is to say nothing of the rush to build capacity and distribution in emerging markets.

Also, a depressed working capital caused by inefficient payable management and a lack liquidity on the supplier side, will negatively affect the financial flow, and subsequently the material flow. Such instances have unfortunately become quite common in the automotive industry, hence the need for an effective solution.

SCF Value Added Proposition

A highly customizable Supply Chain Finance system has the necessary requirements to contribute positively in the flow of cash and materials, in both the Financial and Physical Supply Chain. SCF can be adopted as a standardized platform for Supplier financing as well as payable terms extensions, and result in a real working capital optimization.

Another important attribute that SCF has to offer is that while large OEM buyers will be able to extend their DPOs, they are not leaving their suppliers out to dry. SCF maintains a Win-Win scenario for both the Buyer and the Supplier whereby the supplier will be getting early payment option at lower rates. OEM’s suppliers will be greatly benefiting from an increase in cash flow and as SCF stands for the True Sale of the suppliers’ receivables, it is then an Off-Balance sheet transaction. This will heavily influence the relationship between OEMs and their suppliers and greatly reduce any supply chain disruptions.

UbiQ Innovations in depth research in collaboration with PrimeRvenue concluded that Supply Chain Finance also greatly supports the current focus on R&D in the Turkish Automotive industry and in other markets in order to come up with the most feasible solutions for restricting gas emissions for vehicles intended for export to Western Europe as well as finding innovative solutions for gas efficiency/mileage that is greatly appreciated by the European and Turkish consumers. With SCF, suppliers are now able to effectively manage their R&D costs while maintaining a healthy supply chain with their respective buyers.

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