Strengthening with multibank supply chain finance solutions
Written by Oliver Belin (pictured, right), a thought leader in Supply Chain Finance Solutions managed by PrimeRevenue and author of the book Supply Chain Finance Solutions, published by Springer Verlag in 2011
Thomas Friedman (New York Times journalist and global trade writer) said that globalization has made the word flat. It has also changed the competitive landscape in global trade. Thus, competition is now taking place at a value chain level rather than at a company level. In addition, competition is no longer among physical chains, but on the financial supply chain: access to competitively priced and on-demand working capital is increasingly a point of difference in highly optimized supply chains. The recent financial crisis, which made managing cash and reducing the risk of supplier and customer failure key priorities, provided a strong incentive to CFOs to improve the effectiveness of their financial supply chains.
Managing costs has been traditionally of the main focus and responsibilities of supply chain executives. In the current volatile economic climate, supply chains have difficulties in keeping pace with cost volatility. The increased focus on working capital and cash flow has led to a strategic re-thinking of supply chain relationships. Traditionally, companies tried to squeeze the lowest possible price out of suppliers but more can be gained by developing a collaborative relationship with suppliers.
It takes cash to run a business: to buy raw materials, to purchase equipment and to hire and pay employees, and these costs are constantly increasing. At the same time, payment terms - or the time that it takes to collect on invoices customers – have increased over the past decade. For instance, while some businesses used to get paid by their customer in 30 days, they are now unable to receive payment for 45, 60 or even 90 days. But they still have to come up with the cash to finance their operations. Adding to the problem, for many small and medium-sized enterprises (SMEs) financing can be difficult to obtain and very expensive.
Supply Chain Finance solves both challenges by allowing suppliers to get paid immediately by selling their receivable to a financial institution at a very efficient and transparent cost. The attractive financing rates are achieved by setting up Supply Chain Finance facilities with well-rated buying organizations. Based on the sound credit rating financial institutions can offer attractive funding rates and early payment terms to suppliers. This allows suppliers to dramatically improve their liquidity and free up cash flow to buy raw materials, purchase equipment and hire more employees – so they can increase production and grow their businesses.
As capital markets have become a less reliable source of financing, Supply Chain Finance is now seen as a strategic component of a company’s working capital management kit with many corporations using Supply Chain Finance to de-risk their supply chains and realize working capital improvements. Furthermore, globalization and the increased complexity of supply chains, as created the need for bank agnostic platforms which are not limited in terms of jurisdictions, currencies, credit capacity.
Multinational coporations (e.g. Whirlpool, Volvo, KPN) are already using Supply Chain Finance solutions. Such Sucessful programs are based mainly on multibanking platforms which provide the following added values:
Scalability- Technology is key, whether it is Procurement, Finance or another department tasked with managing the program internally, scalable technology enables the productivity and connectivity to allow a small team to manage the requirements of a growing program.
Multifunding- Buyers need the flexibility to work with multiple funding sources or to use their own balance sheet (self funding), without adding complexity or significant workload to the organization.
The platform should make it easy to connect to multiple funders as it is to connect to a single funder. Also the ability to leverage funding sources that are not subject to market violiatity is critical. This is your supply chain there are not too many assets more valuable to a corporation.
Global- Large corporations tend to have global supply chains, thus they need to be able to administer global Supply Chain finance programs. A successful multifundign platform supports multiple jurisdictions, currencies, languages, and timezones.
Supplier Onboarding- Without supplier involvement, an organization cannot run a successful Supply Chain Finance program. Dedicated supplier onboarding and ongoing support will encourage, rather than hinder, supplier participation in the program. Service providers should be specialized in onboarding and managing Supply Chain Finance programs and offer tools and services beyond just people to sit in a meeting.
About the Author
Oliver is a thought leader in Supply Chain Finance solutions managed by PrimeRevenue. Prior, Oliver worked for leading institutions in SCF including, Global Supply Chain Finance and Sumitomo Mitsui Banking Corporation Europe. In 2008, Oliver founded Swiss Commercial Capital, a company specialized in trade finance solutions, which was acquired by Macquarie Bank. In 2011, he released the book “Supply Chain Finance Solutions”, published by Springer Verlag.
SAP Ariba to digitise procurement for Expo 2020 suppliers
The global trade event, this year hosted in Dubai, was rescheduled from last year and will now take place between 1 October 2021 and 31 March 2022.
As the event’s Innovative Enterprise Software Partner, SAP Ariba solutions will fully digitise and automate the procure-to-pay lifecycle, providing a streamlined experience for thousands of market leading, global suppliers and strengthening the global supply chain with enhanced transparency and efficiency. The cloud-based platforms operate through on SAP Ariba’s UAE public cloud data centre and connects to the Ariba Network.
Expo 2020 "a long-term investment"
Mohammed AlHashmi, Chief Technology Officer, Expo 2020 Dubai, said the world trade event is “a long-term investment in the future that aims to enhance opportunities for sustainable business connectivity and growth”, which stretches beyond Expo 2020’s six-month window.
“Our partnership with SAP is an example of what can be achieved with the invaluable support of our technology partners to host one of the most digitally advanced World Expos ever,” he added. “The implementation of SAP Ariba solutions has transformed our end-to-end procure-to-pay cycle and helped set new standards of procurement automation for projects of this scale.”
To date, more than AED 1bn has already been transacted by Expo 2020 suppliers through SAP Ariba. The platform promotes collaborative partnerships and allows registered users to participate in sourcing events, negotiate and initiate contracts, and centralise their invoicing and payments in real time.
Claudio Muruzabal, President of EMEA South, SAP, said: “Expo 2020 Dubai is demonstrating global best practices in digitising its procurement process with SAP Ariba solutions to help gain visibility into its spend, tighten collaboration with its suppliers, and achieve process automation, including completely paperless invoicing.”
About Expo 2020 Dubai
Expo 2020 will take place in Dubai and is the first of the long-running World Expos to be hosted in the Middle East, Africa and South Asia territory. The original World Expo, called the Great Exhibiton, was hosted in 1851 at the Crystal Palace in London, designed as a showcase for the innovations of the Industrial Revolution.
Expo 2020 was originally due to run 20 October 2020 to 10 April 2021, but was last year postponed in light of COVID-19 restrictions - though some business has already taken place virtually. The event will place greater emphasis on innovation in sustainable solutions through the Sustainability District, blending technology and culture. It is expected that around 70 per cent of the 25 million attendees will be international visitors.