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How to Unlock the Full Power of Supply Chain Finance

How to Unlock the Full Power of Supply Chain Finance

By Mark Douglas • Published June 14, 2024 • 5 minute read

Every supply chain finance program is different. The industry, types of suppliers, funders involved, and the working capital initiatives they’re tied to differ from company to company. Despite their differences, there are some things highly successful supply chain finance programs reliably have in common. The inverse is also true – programs that fall short of expectations also share common characteristics. 

It is critical to understand these commonalities and how they relate to today’s working capital initiatives. Supply chain finance is a strategic undertaking. While there are solutions that streamline program implementation and execution, it’s not a simple endeavor. Maximizing value is key. In order to unlock the full power of supply chain finance, companies must be aware of what separates the mediocre from the high performers. 

Why Do Supply Chain Finance Programs Fail?

Not all supply chain finance programs are successful. In fact, many companies turn to PrimeRevenue because their existing or prior programs have not delivered. The reasons for this can be distilled into a few critical areas:

  • Lack of Procurement Engagement: For SCF programs to succeed, procurement teams must be actively engaged. Without their buy-in, initiatives can lack the necessary traction to make a meaningful impact.
  • Inadequate Procurement Incentivization: Motivation is key. Procurement teams need to see clear benefits and incentives aligned with their objectives to fully commit to SCF programs.
  • Senior Stakeholder Sponsorship: Leadership support is crucial. When senior stakeholders are not championing the cause, SCF programs can struggle to gain the necessary momentum and support across the organization.
  • Strategic Alignment: SCF must be tied to broader strategic initiatives. If it’s not seen as a critical tool for achieving overarching goals, it risks being deprioritized or abandoned altogether.

The Growing Role of ESG in Procurement and Supply Chain Finance

Environmental, Social, and Governance (ESG) considerations are becoming increasingly vital in procurement and SCF. However, integrating these factors is still a work in progress. Many organizations talk about sustainability, but fewer follow through with substantial actions. This gap presents significant opportunities for evolution and improvement in linking supplier finance to sustainability goals. Companies that are considering or implementing sustainability-linked SCF should keep these things in mind:

  • High-Level Adoption Across the Supply Chain: ESG initiatives tend to cover the entire supply chain. Unfortunately, many SCF programs do not – they’re limited to regional supplier participation or only include suppliers of a certain size. To truly embed sustainability into SCF, and to use SCF as a tool to help companies reach their ESG objectives, supplier participation in SCF must extend across wide swaths of the supply chain. This requires working with supply chain finance partners that support multiple funders that cover multiple currencies and jurisdictions. This requires a robust infrastructure that promotes collaboration among all stakeholders.
  • Supplier Portals Beyond Early Payment: Getting more suppliers onboarded onto a single payments platform that supports early payments and on-time payments is key. It enables centralized, automated payments to all suppliers – regardless of whether they choose to participate in early payment programs. This supports the sharing of ESG-related data and best practices.

Main Challenges Facing Procurement Decision-Makers Today 

Treasury and finance may spearhead the introduction of supply chain finance initiatives, but the success and execution of these programs lives and dies in procurement. Understanding the challenges specific to procurement teams and executives is imperative to making sure supply chain finance programs are top of mind. Today’s procurement teams are navigating a myriad of challenges, many of which have been exacerbated by recent global events. The primary issues include:

  • Overwhelm: For several years, procurement has been grappling with significant supply chain disruptions, challenging procurement teams to adapt quickly. But many of these teams are overburdened. Finding a partner that streamlines supply chain finance program implementation and onboarding in a way that reduces procurement’s workload. 
  • Microchip Shortages: The semiconductor shortage has been a major issue, though it is beginning to stabilize. This disruption highlighted the fragility of supply chains and the need for more resilient planning.
  • Geopolitical Conflicts: Ongoing geopolitical tensions add layers of complexity to procurement, requiring decision-makers to navigate sanctions, trade restrictions, and regional instability. Bank-led SCF programs in particular are susceptible as financial institutions can pull program funding amid geopolitical and economic instability – essentially defunding programs with little recourse. 
  • Shift in Supply Chain Strategies: The move from “just in case” back to “just in time” supply chain strategies reflects a recalibration of risk management approaches. Procurement teams must balance efficiency with the need for flexibility and resilience. The transition is straining the financial health of some supply chains as supplier and buyer cash flow is impacted.

Enhancing Working Capital Through Effective Cross-Functional Collaboration and Strategic Alignment in Supply Chain Finance

To maximize the working capital impact of supply chain finance programs, companies need to navigate these challenges and realities. This often starts with better cross-functional collaboration between finance and procurement. Tying supply chain finance programs to specific, measurable business initiatives that everyone can rally around is paramount. Lastly, easing the burden on procurement and finance resources as they implement, execute, and grow supply chain finance is extremely important – particularly now as these stakeholders are navigating a complex business, economic, and geopolitical landscape. 

If you’d like to learn more about how to get more value from supply chain finance, join me and the PrimeRevenue TEAM at GTR UK 2024 London on June 20 at Booth 18. I’ll be diving into these topics alongside industry thought leaders during a panel discussion on “Unleashing the Full Potential of Supply Chain Finance through Integration.”