​Looking Far and Wide: The Current and Future Position of Supply Chain Finance in the Global Economy

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As the Supply Chain Finance Community Forum meets again, Adaugeo Media editor Andrew Sawers highlights the programme’s main themes and interviews some of the participants about how the supply chain finance market is developing.

SCF Community Forum

SCF Community Forum

Every year this event is growing, the community is growing, the contacts are great, the breadth and the depth of the discussions is wonderful.

The third annual Supply Chain Finance Community Forum took place at the historic Beurs Van Berlage in Amsterdam. But this was a day very much focused on looking to the future, not the past. In fact, it coincided with a significant press announcement by four leading Dutch companies – Heineken, Randstad, FrieslandCampina and Jumbo – all of which said that they would commit to offering supply chain finance to their larger suppliers, while promising to pay smaller suppliers within 30 days.

“That’s a very important step, that large companies are publicly announcing their policy towards payment terms,” says Michiel Steeman, executive director of the Supply Chain Finance Community. “The longer term effect of such a step is that, if the top 1,000 buyers in the Netherlands follow this lead, then we estimate that at least €2.5bn of liquidity will be freed up from currently unpaid invoices. That can be a significant push for the economy.”

What quickly became apparent from the conference presentations and discussion groups is that corporates are concerned to ensure that supply chain finance is used to create value across the supply chain, and not simply generate benefits for the buyer organisation.

“What you often hear is that [corporates] use these kinds of programmes to extend their payment terms,” said Simon Ampts, head of supplier finance at Rabobank. “I don’t believe that that’s necessarily the case. What you often see is that they ensure in their internal organisation that they have the right balance between working capital and good negotiations with their suppliers to ensure stable supply.”

The supplier perspective on this was presented by Jannine van Lieshout, CFO of Van Uden Logistics, who said: “Supply chain finance capitalises on the strengths that collaboration represents and the reduction of risk it implies by sharing the benefits of the favourable credit rating of the large enterprise.”

This was reinforced by Anthony Buchanan, treasurer for procurement at SABMiller, who told delegates that supply chain finance “should truly be a win-win situation”. He also explained some of the regulatory and accounting standards requirements that corporates must comply with, particularly in a global roll-out of supply chain finance.

Buchanan said after his presentation: “You need to fully understand your supplier base. At SABMiller we have a large farmer base, especially in Africa, and reverse factoring would not be part of the discussion with that supplier base. It is a key concern for us and something we constantly look at to ensure we’re acting in a fair nature for both our business and for the suppliers that we work with.”

The ‘SCF and Sustainability’ stream heard how the growing importance of emerging economies in the supply chain makes it crucial that supply chain finance solutions are deployed worldwide. Federico Caniato of the School of Management, Politecnico Milano, explained that developing countries’ contribution to global imports and exports has doubled since 1995, and in 2013 their share of global exceeded 50% of GDP for the first time in the modern era.

Cristina De Berardinis, corporate finance director of fashion group OTB, told how they introduced new quality thresholds for suppliers to meet in order to qualify to participate in their supply chain finance programme. “Our supply chain is getting a lot better and a lot more reliable,” she said.
Rick van der Kamp, the Jakarta-based senior operations officer for International Finance Corporation, part of the World Bank Group, explained how suppliers’ ‘sustainability rating’ is tied to the interest rate charged for the global trade supplier finance made available to them: the better the sustainability compliance the lower the interest charge.

Scott Overdyke of Root Capital talked about how his organisation works with global brands to create “a financial market serving agricultural businesses that generate long-term social, economic, and environmental sustainability for smallholder farmers around the world.”
Looking to the future

In the ‘SCF 2.0’ stream, Ronald de Boer, associate professor of Windesheim University of Applied Sciences, presented research into new models piloted by Philips and Heineken designed to extend supply chain finance beyond its traditional ‘reverse factoring’ structure and beyond its traditional ‘tier 1’ supplier base target. He said that, across the supply chain, funding costs can be 4% or even more of the cost of goods sold.

Prof Dr Erik Hofmann, chair of logistics management at St Gallen University, explained new approaches to inventory finance, to get funding through the supply chain: “The involvement of logistics service providers enhances the possibilities of financing a company’s inventories not only on-balance sheet but also off-balance sheet,” he said.

Jason Bristow, former vice president and treasurer of Amazon.com, shared information about how that company implemented a supplier payment programme. He later explained: “The future will be technological and regulatory – and if you can tackle both of those things with a solution that’s scalable across the globe you have a winning model. If it can be done and implemented without a lot of heavyweight lifting that’s a benefit as well.”

Presenting a case study on how to get supplier finance to tier 2, Fred de Brabander, global supplier risk manager at Philips, said that one of the benefits of supply chain finance should be “to stabilise financially the supply chain.” He added: “Risk management is the most important part of supply chain finance.”

The stream was moderated in the morning session by Bas Marteijn, managing director and head of trade finance Benelux, Deutsche Bank, and in the afternoon by Andrew Burns, director, business development, at C2FO.

One innovation in the programme this year was the introduction of an ‘Open RFI’ stream, in which six finance and technology solution providers explained how they are equipped to help corporates reach the ‘long tail’ of smaller suppliers. Presentations by Taulia, ING, C2FO, PrimeRevenue, Santander and Orbian were followed by discussions and Q&As moderated in the morning session by Joost van Beem, finance director at Heineken Global Procurement, and in the afternoon by Beata Wandachowicz-Krason, finance process manager at Philips Procurement.

Prof Dr Michael Henke of Fraunhofer IML explained the opportunities available through the standardisation of technology while Matthijs van Bergen from the Supply Chain Finance Community introduced the ‘Open RFI’ session.

Later, a case study by Stefan Reidy, CEO of Arviem AG, explained how ‘track and trace’ technology “is uniting the physical and financial supply chains”.

In another case study, Bernard Gerardin, finance manager for group purchasing at Michelin, detailed how the global tyre group has been introducing supply chain finance. “The offer is built to be a win-win solution,” he said in an interview afterwards. “It has to be an advantage for Michelin but also for the supplier – and in our case that’s the reality. The success rate is enough to encourage us to go quicker in deployment.”

A discussion panel featuring Anthony Buchanan (SABMiller), Bernard Gerardin (Michelin), Jason Bristow (formerly Amazon.com) and Fred de Brabander (Philips) shared viewpoints on how they use supply chain finance around the world.

Summarising the day, Michiel Steeman said that market adoption of reverse factoring by large corporates “has increased tremendously” since last year when Dutch government minister for economic affairs Henk Kamp announced the launch of the Betaal Me Nu (Pay Me Now) initiative at the 2014 SCFC Forum. “We believe it is going to become a standard solution for large corporates in dealing with their suppliers,” Steeman said.

The Supply Chain Finance Community Forum started two years ago and had 50 delegates. Last year it doubled to 100, and this year more than doubled again to over 200 delegates, with representatives from the corporate side and suppliers, finance and technology providers and the academic world. “That proves that the market for SCF and the interest in it has grown tremendously,” Michiel said. “That in itself is evidence that an event like this is important to bring the market together.”

Bas Marteijn of Deutsche Bank said later: “Every year this event is growing, the community is growing, the contacts are great, the breadth and the depth of the discussions is wonderful. You now see ‘supplier care’ coming in – corporate social responsibility – looking into the far, far future. I’m very excited about the more holistic theme and the way that this conference is developing.”

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