There has been a lot of discussion around the definition of supply chain finance (SCF) as various service providers seek to attach themselves to recent SCF market momentum. But there remains a basic question. Despite the market buzz, why isn’t SCF more widely deployed? Why wouldn’t nearly every procurement and merchandising organization implement it? The answer lies in the visibility of the problem SCF is trying to solve and the implication for SCF solution requirements.
Ultimately SCF is a supplier relationship management tool that reduces cost, capital and risk throughout the supply base by making supply chain financial flows more efficient. With physical flows, the head of the supply chain (“buyers”) see the cost of inefficiency in the form of excess inventory. With financial flows, buyers only see free float from suppliers, often receiving “free” financing of 60 days or more. But of course it’s not free. Finance costs associated with products moving through the supply chain comprise approximately 4% of finished goods costs (the same size as transportation and distribution costs). Further, there are costs to the buyer associated with implementing SCF. Why isn’t SCF more broadly implemented? Because the problem it solves is invisible to many buyers while the costs of implementing SCF, minor as they may be, are quite apparent.
With the above discussion at hand it would seem obvious that the next question should be: “How does an SCF solution make the benefits tangible to the buyer?”
Banks have been financing suppliers for centuries and the technology to automate supply chain financial flows has been available over a decade. What’s been missing until relatively recently is the ability of supply chain finance solution providers to design and implement SCF solutions that create value for the buyer. Most SCF solutions will fail if they are simply about providing financing to suppliers. To be successful, an SCF solution provider must design and implement a solution for the buyer that delivers meaningful working capital reductions and incremental cash flow quickly, predictably and efficiently based on the unique characteristics of the buyers supply chain. This requires a sophisticated approach to the supply chain and payment terms.
This is where PrimeRevenue clearly outperforms other SCF solution providers.