Supply Chain Finance

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Demystifying supply chain finance*
Insights into the what, why, how, where and who

Table of contents

The heart of the matter

The emerging Supply Chain Finance (SCF) tool set.
An in-depth discussion

2

SCF—what it is, why it’s important, and how it works.
What this means for your business

4

Reaping the end-to-end benefits available through effectively managed SCF solutions.

10

March 2009

The heart of the matter

The emerging Supply Chain Finance (SCF) tool set.

2

Times are tough. Capital is more expensive these days and access to it is more difficult. Demand is dropping off, customers are paying more slowly and working capital is being tied up in languishing inventory and slow-moving receivables. As a result, companies are looking inward for ways to release trapped cash from operations. Going beyond payables and receivables, today’s CFOs and Treasurers are taking a fresh look at how their physical supply chain is impacting their companies' cash flow and working capital management. Over 70% of respondents to a recent Aberdeen Group survey said their companies view working capital optimization as a high priority.1 For decades we have witnessed companies taking an ineffective “now we focus, now we don't” approach to managing their working capital needs—focusing on collections, payables, and inventory during periods of cash constraints and relaxing, even losing, that focus during times of easy access to financing and liquidity. But now, even well-managed companies are being forced to consider embedding effective working capital management and associated tools into sustainable processes to eliminate those historic ebbs and flows and minimize related business risk across their customer and supply chain base. Rising interest in SCF. Concerned about the rising risk in their supply chains stemming from the economic stress on suppliers, volatile commodity and energy prices, and broadbased financial turmoil, today’s executives are actively looking at SCF options in terms of lowering their overall financial supply chain costs. We believe they are attracted by the promise of supply chain financial savings, increased supply chain stability, and the efficiencies that SCF offers to both buyer and supplier. Unlocking the value in the supply chain. SCF can include different types of financing and payment arrangements between the supply chain partners. This article explores one of the prominent types of SCF in which a third-party financier provides liquidity to suppliers by leveraging their buyer’s higher credit rating—an arrangement that often involves the use of a technology platform to automate transactions and provide visibility into the invoice approval status to all parties involved. This allows companies to unlock the value in the supply chain in many ways, including: • Extending buyer's Accounts Payables terms

Accelerating seller's access to lower cost capital • Reducing risks imbedded in the supply chain • Enhancing cash forecasting capabilities • Supporting advanced Treasury and Working Capital business strategies • Strengthening buyer-seller relationships While it’s true that SCF is not for everyone, it can indeed be a powerful tool for the right company in the right industry.

1. Aberdeen Group. Working Capital Optimization: Finance and Supply Chain Strategies for Today’s Business Environment. October 2008

The heart of the matter

PricewaterhouseCoopers

3

An in-depth discussion

SCF—what it is, why it’s important, and how it works.

4

As a result of the current credit crunch, we are beginning to see a new rise of fiscal discipline emerging in business—one that is as focused on the management of cash as on the generation of revenue. In today’s world, one of the challenges facing companies is the rising risk in their supply chains. According to the McKinsey Quarterly, “Executives point to the greater complexity of products and services, higher...
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