You’ve got to work with what you’ve got—the catch phrase is no stranger to anyone. And in the realm of global supply chain finance (SCF), it’s a philosophy that numerous organizations in the supply chain came to terms with in the wake of such crises as the Eurozone’s demise and the U.S. recession of 2008.
Supply chain investments of any kind were few and far between as tight budgets took hold of companies who struggled to get through the economic conditions over the past several years. And for suppliers and manufacturers, such market conditions resulted in a domino effect felt end-to-end with a decreased demand for items as consumers kept a tighter rein on their spend; manufacturers experienced, in some cases, the slowdown in production; and as the need for logistics services to transport those goods became less frequent. It’s not to say that such processes came to a complete halt. But a disruption was felt nonetheless, as cash flow that many end-users, manufacturers and service providers expected was affected; and more stringent requirements for approved supply chain credit lines were put in place to mitigate approved loans.
In such scenarios where you have a financial or economic crisis occur, “you have a situation where the supply chain should continue to operate—people are still going to buy products and services and goods are still going to move through the supply chain—but you have a disruption of the flow of the money that follows the goods and services,” confirmed PJ Bain, Chief Executive Officer, PrimeRevenue Inc. “It’s not as efficient as it should be because the supply of the cash is not there. And it still takes cash to run a business—to run a supply chain.”
As such, it comes as no surprise that the global supply chain experienced a rise in SCF platforms and capabilities offered to connect buyers, suppliers and their financial partners. In the case of Kyriba Corp., it launched its supply chain finance technology platform integrated with its treasury management system in early 2012. Additionally, universal purchasing and invoice processing system provider Verian launched V11.1 of its purchase-to-pay software suite in Q4 of 2012.
Perhaps even more important to address here is the increased adoption rate of such services companies use to mitigate their financial health. Freight and logistics company Panalpina implemented a financial shared services model with the help of Accenture—as part of a seven-year agreement signed in 2010—to consolidate and standardize finance processes across its global operations. More recently, Tuff Automation Inc., a U.S.-based manufacturer of industrial machinery, implemented PrimeRevenue’s OpenSCi SCF solution to speed payments and optimize working capital.
The bottom line is clear—in addition to government finance regulations, buyers and suppliers are looking at SCF platforms as an additional means to help control their financial transactions—and supply chain finance technology and tools providers must understand their challenges so they can meet their strategies.
“Buyers and suppliers—in those affected areas where money is disrupted—seek additional tools,” said Bain. “They look for ways to mitigate risk associated with the banks because much of the crisis that occurred within those regions really kind of starts with the stability of the banks, a lot of times. So if the flow of money is disrupted at the banks, it’s going to trickle down and affect the flow of money in the supply chain. What we’ve seen is a very high demand of people that are looking for alternative solutions and ways to mitigate the risk of being associated with a particular bank. If you have a single bank that is funding all of your working capital through a traditional operating line of credit and that bank doesn’t have access to money, all of a sudden you’re in a very bad spot.”