Judging Supply Chain Finance Implementations

Never judge a person until you walk a mile in their shoes-  Proverb

Different corporate objectives and/or supply chain demographics can lead to significant differences in how corporates implement a customized solution like Supply Chain Finance.  Not only does this customization lead to different implementation approaches but it also leads to different measures of success.

Many people not directly involved in Supply Chain Finance look at the number or percentage of suppliers participating in an SCF program as the measuring stick of a successful implementation. This is usually the wrong metric because the buyer’s objective is not to maximize the number of supplier’s on the SCF system.

Most buyers leverage SCF to support an initiative to extend supplier payment terms and reduce working capital within their direct material (or goods for resale) supply base. If that’s the objective then the organization should try to maximize the percent of spend on the SCF program, not percent of suppliers. Over on Spend Matters, Jason Busch discusses “early payment programs” and says that “when companies enable such programs with technology, it’s rare that more than a small single digit percentage of suppliers participate.”

How do we know that single digit supplier participation doesn’t meet the buyer’s objective? In fact, in most industrial supply chains you can reach 70% or more of the spend with less than 10% of the suppliers. Many buyers will choose to maximize the amount of spend flowing through SCF with the least number of suppliers. The biggest limiting factor on the number of suppliers who participate is the buyer’s objectives, not SCF, and that is entirely appropriate.

I think the focus on maximizing the number of suppliers comes from the electronic invoicing and purchasing card worlds where you’re trying to digitize a large number of paper based transactions so the focus is on number of transactions and number of suppliers (and usually indirect spend) rather than on the value of those transactions. With SCF, the objectives are very different and therefore so are the metrics for success.