The Sweet Spot

Sometimes we stare so long at a door that is closing that we see too late the one that is open –Alexander Graham Bell

There’s been a lot of supply chain finance activity in the food & beverage space this year as we can now add them to the list of industries where supply chain finance has become a standard business process, along with truck manufacturing, DIY retail, appliance manufacturing, auto parts retailing and brewing. What industries might be next? Let’s look at what supply chain characteristics indicate they can benefit greatly from supply chain finance:

1. Industry concentration. Are there a limited number of large global players? If so, their spend with each supplier is likely to make up a material amount of the suppliers revenue so SCF will have greater value for suppliers.
2. Spend concentration. Is the buyer’s spend concentrated among suppliers. Same as above, this means their spend with each supplier is likely to make up a material amount of the suppliers revenue so SCF will have greater value for suppliers.
3. Long payment terms, greater than 45 days. Longer payment terms mean more cash flow gain for suppliers from supply chain finance.
4. Higher percentage of sub-investment grade suppliers. These suppliers will gain more value from supply chain finance.
5. Capital intensive supply chains. Suppliers here will value cash flow and reducing working capital requirements very highly.

If an industry meets any one of these criteria, it should be a good candidate for SCF.