Executives around the world are facing increasing credit restrictions, forcing them to look for alternative ways of financing their projects. Another global trend is joint problem solving, in which different companies seek to address their challenges with collaborative initiatives. These two characteristics of the current scenario are the basis of the operations of Supply Chain Finance, which seeks alternatives for financing and optimizing invested capital to reduce financial costs by looking at the supply chain as a whole.
The group Procurement Intelligence Unit presents a definition of Supply Chain Finance in his report of the same name:
Supply Chain Finance is a buyer-led initiative that facilitates the most favorable financing for the supplier in order to achieve mutual benefits for trading partners, through the use of a technology platform, third-party financial institution or in other ways.
Despite the concept of Supply Chain Finance still not very well known in Brazil, many of the SCF initiatives are widespread, such as reducing inventory levels, increasing payment terms to suppliers and seeking financing between links in the supply chain.
Reducing inventories and increasing payment terms to suppliers are ways of financing the supply chain by releasing its own resources. Research carried out with 67 companies from different sectors of the thousand largest companies in terms of revenue in Brazil and presented at the Overview of Supply Chain Finance – How the Supply Chain can contribute to the financial planning of companies – 2015 shows that managers have already realized that reducing inventories (almost 80% of respondents) and increasing payment terms (86% of respondents) can reduce the need for working capital and help finance new company projects.
Another initiative of Supply Chain Finance is the search for financing between links in the supply chain, which can be done through its own resources, in which the company finances its supplier directly, or through negotiation with banks or other financial institutions to obtain cheaper credit.
The results of the survey carried out by ILOS show that more than half of the companies (54%) have already financed suppliers with their own resources. If we take into account the high cost of money in Brazil, this data demonstrates the willingness of Brazilian companies to form partnerships to reduce the financial cost of the supply chain.
In addition, almost 60% of the companies have already negotiated or intend to negotiate with financial institutions to obtain better credit conditions for their suppliers, mainly medium or small sizes, through their greater bargaining power.
These initiatives, however, do not only aim at cheaper credit for the supplier, since they are often accompanied by demands for better purchase conditions, such as increased payment terms, discounts on products and guarantees of supply to the company. The result of the survey shows that the overwhelming majority of companies (91%) recognize that there were benefits for the company itself and intend to repeat the practice more often.
Although the concept of Supply Chain Finance is not yet fully consolidated and widespread, its basic idea is already being pursued by companies around the world: the supply chain can be an additional source of financial resources for companies. And that doesn't mean pressuring suppliers for exorbitant discounts and endless payment terms, transferring value from one agent to another. The concept of Supply Chain Finance it is more related to the creation of value from greater integration in the chain, establishing win-win relationships that are more sustainable in the long term.
References
Procurement Intelligence Unit, Supply Chain Finance Full Report, available at:http://resources.procurementleaders.com/PIU/Supply-Chain-Finance-Full-Report-no-download/files/assets/seo/page1.html>
Panorama ILOS: Supply Chain Finance – How the Supply Chain can contribute to the financial planning of companies – 2015, available at:
<https://ilos.com.br/web/analise-de-mercado/relatorios-de-pesquisa/supply-chain-finance/>
Beatris Huber
https://ilos.com.brManaging Partner of ILOS, Master in Business Administration from COPPEAD/UFRJ with extension at the European Business School – EBS, Germany and Business Administration from UFRJ. More than 10 years of experience in training and consulting projects, focusing on Logistics and Supply Chain. In the training area, he developed company games and online courses and today teaches classes in Data Analysis, Inventory Management, Warehousing Management, in addition to applying business games such as Beer Game in open and in-company programs in companies from different segments, such as Coca -Cola, Nestlé, ThyssenKrupp, Votorantim, Carrefour, Mallinkrodt, Souza Cruz, Via Varejo, Monsanto, Itaú, Renner, Ipiranga, among others. In consultancy, he carried out projects such as Redefinition of the Logistics Network, Inventory Management, S&OP Process Structuring and Diagnosis of Storage and Transport Operations in companies such as Coca-Cola, Souza Cruz, Editora Moderna, Petrobras, Ducoco, Ultragaz, Silimed, Eudora among others.
