5 top tips for effective supply chain finance
With 2014 now coming to a close, many purchasing managers are reviewing their supply chain finance and make efficiency savings where possible.
The recent financial crisis has increased the development of supply chain finance solutions, with numerous companies worldwide having recognised the potential of supply chain finance to help unlock liquidity and boost the effectiveness of their financial supply chain.
A recent study from the Global Supply Chain Institute at the University of Tennessee found that organisations closely integrating supply chain functions provide improved business results.
Several respondents also noted drawbacks as a result of a lack of collaboration, with performances falling below expectations in fields where two groups of specialists needed to work alongside each other.
The study recommended specialists to completely integrate all of the functions in a supply chain organisation, ensuring common metrics are used at all times.
Supply chain finance remains valuable to businesses across the globe and, as markets start to ease, conservative credit structures and new banking legislation could make it more difficult to reach credit.
1. Reward suppliers
The relationship between buyers and sellers is imperative for successful supply chain finance management. To ensure this partnership lasts longer and turns into a success, you should consider establishing preferred supplier programmes, recommend sellers to other businesses and offer payment bonuses.
If you speak positively about your supplier and push them forward as a great asset, they could secure new deals and improve their financial security significantly.
This kind of gesture is likely to be reciprocated by buyers, as they will appreciate the sentiment and may agree more favourable terms for their partners.
2. Make your supply chain sustainable
A sustainable supply chain will have a positive impact on the environment and save money in the process.
One of the best ways to do this is to identify the processes that are consuming the most energy and look at ways you can make these more efficient. With external finance, buyers can help suppliers to become sustainable, which is particularly beneficial as several customers and governments have their own strict rules.
Sustainability does not only relate to the environment, though. A strong supply chain should work effectively and be capable of reacting efficiently to budgeting changes.
The International Finance Corporation (IFC) has outlined many of the advantages that come with a sustainable supply chain. The group underlined that, by incorporating eligibility requirements based on sustainability standards into contracts, organisations can benefit from a far more efficient and greener structure.
The IFC argues that encouraging suppliers to introduce best practices can boost risk management, improve operational efficiency and lead to larger profits.
Other opportunities available through sustainable supply chains are strong growth potential and and an improved credit risk.
As well as this, financial institutions that are familiar with the specifics of a sustainable supplier market are able to extend their market reach in a competitive market for small and medium-sized enterprises.
3. Offer training resources for suppliers and buyers
You should not assume your partners already have efficient supply chain practices in place, especially when you can actually teach people a new way of managing their finances and supplies.
Supply chain managers should consider meeting up with their suppliers to hold meetings and offer new perspectives on business processes. Even if they do not adopt any of the suggested practices, they will appreciate the sentiment and could turn to you when they need advice.
As well as helping your partners, you could use these resources as another method of generating profit. Monthly workshops could prove highly popular, improve your reputation and establish your company as an authority in the area.
For example, a number of leading bodies in the UK infrastructure sector have teamed up in order to reinforce the industry’s supply chain.
The New Civil Engineer (NCE) has joined up with the Civil Engineering Contractors Association (CECA) and training group CITB to introduce the Infrastructure Leadership Programme.
The scheme has been initiated in order to recognise the key role supply chain members can play in upgrading and maintaining the Britain’s transport and utilities networks.
It is hoped the project will be able to provide a single view of the capabilities required from organisations. The work will form the basis of a low and no-cost training scheme, which will be provided at supply chain companies from 2015 onwards.
In order to support the project, the team will run eight regional events to supply chain businesses to discover more about the programme and offer opinions regarding the types of support they would benefit from.
The project is financially backed by the UK Commission for Employment and Skills and makes up part of its UK Futures supply chain management and leadership competition.
Among the supporters are Balfour Beatty, BAM Nuttall, Kier, Carillion and Lagan Construction Group.
4. Manage risks responsibly and review supply chain management
When creating supply chain management plans, businesses need to be wary of risks. After all, it may not go as planned and, if this is indeed the case, efficient processes need to be in place to rectify issues as quickly as possible.
For businesses that are using several suppliers, the element of risk can become more intense. After all, the more companies you work with, the higher the probability that they could encounter financial troubles.
Before agreeing to deals, you should look into a supplier’s background. What is their credit rating, do they have any unsolved debts and are they experienced? All this information could prove vital.
If you are dealing with a company that is new to the market, there is even more risk. However, do not rule out newcomers - just make sure you are aware of their potential!
A study from the Aberdeen Group identified a number of top pressures facing people working in supply chain finance. Some 33 % of those polled cited the risk of trading partner default was a key concern, while difficulty obtaining financing on acceptable terms was a problem for 22 %.
The research also identified demand volatility as one of the top risks, with 46 % of respondents citing it as the primary source of pressure.
It read: “Many of the capabilities embraced by organisations today focus on understanding the financial and credit position of the trading partner.”
The Aberdeen Group suggested that, while buyers want to ensure suppliers have sufficient capital to start production and ensure timely delivery, suppliers want to gain access to the best trade financing options available.
5. Invest in future proof technologies for supply chain management
Supply chain management can be problematic when working with companies from a number of different countries.
You need to ensure communications are as fluid as possible. Any misunderstandings could hold up the supply chain and have a detrimental impact on a business’ revenue and reputation.
There are a number of applications available to translate communications, assess statistics and make valid projections regarding profitability. By using this technology, businesses will be able to organise their supply chain and identify where savings can be made.
Such software is capable of calculating revenue and how it will increase over time. With this data, companies can make accurate estimates regarding their future and plan ahead properly.
At the moment, more than 40 % of respondents of the Aberdeen Group’s survey use an electronic system for elements of the supply chain. Some 50 % used the technology for invoice receipt and approval or purchase order and submission (41.7 %).
[Summary: Here are five top tips to ensure efficient supply chain finance, including how to reward suppliers and improve sustainability.]