Maximising the value of supply chain finance

Supply Chain Finance (SCF) arrangements aim to add value by taking a cooperative approach to financing the supply chain. Interest in SCF has been increasing, and decision makers need a comprehensive view of possible applications and their potential. By means of theoretical and empirical exploration, we develop a conceptual framework that allows for positioning of SCF concepts and practices. The framework is based on a delineation of four archetypal SCF policies and the criteria that are relevant for adoption of each policy. The two main contributions of our framework are: (1) it explicitly considers operational motives as well as the financial motives that could prompt a firm to engage financial cooperation; and (2) it uses a discounted cash flow approach to illustrate the trade-offs that arise from different risks in SCF implementations. We use the framework to review policies that have been used in reverse factoring, an SCF practice that has recently become popular. Our study reveals implications for all the parties involved in an SCF implementation

Supply Chain Finance: Modelling a Dynamic Discounting Programme

In the last 10 years, new financing opportunities (known as “Supply Chain Finance” or SCF) arose, exploiting the strength of new ICTs and supply chain links to optimise the working capital and create value for the organisations involved. One of the solutions within the SCF landscape, called Dynamic Discounting (DD), utilises trade process visibility granted by an ICT platform to allow the dynamic settlement of invoices in a buyer-supplier relation: for every day of payment in advance with respect to a pre- defined baseline, the supplier grants to the buyer a discount on the invoice nominal value. DD is a supply management tool for which a cash-rich anchor buyer can let suppliers (especially SMEs) fast-access cash, while gaining a relatively high rate of return. This paper aims to estimate, through the development of an analytical model, the potential benefit sof using a DD model in a buyer-supplier relation. After a brief review of relevant literature, the paper presents amodel that compares, for the supplier, the cost of granting a discount to the buyer with the benefit of an early payment, whereas for the buyer, the benefit of receiving a discount with the financial cost of an early settlement. This paper fills the gap in literature related to the definition of the processes underlying the adoption of DD, and more broadly the need for models to assess the benefits of the most innovative SCF schemas

Les enjeux du Supply Chain Finance : une étude exploratoire sur les entreprises marocaines

This paper is part of the work that highlights the importance of managing financial flows in Supply Chain Management. Indeed, our research focuses on identifying the stakes of Supply Chain Finance in the context of Moroccan companies and on the study of the role of SCF in the chain's efficiency through an exploratory study. Based on a literature review, we discerned the potential impact of SCF on the chain's efficiency. Empirically, we conducted an exploratory qualitative study to examine Moroccan managers' knowledge of our key concepts by asking how financing issues were addressed in their companies. To this end, we conducted ten semi-structured interviews. Thus, based on the results obtained, we find that SCF is positively linked to the optimization of the efficiency of the supply chain, as it facilitates access to financing for SMEs while offering a balance between the different and sometimes contradictory needs of the supply chain actors. In general, our research contributes to the conceptualization of SCF as a financial resource and an approach related to supply chain management.  The main limitation of our research is that considering Moroccan companies (SMEs) represents a challenge, as it is a new and little-explored context. This perspective can be justified because most studies on SCF have mainly focused on developed and emerging countries. Thus, a further statistical analysis, such as using structural equations, would be necessary to justify a more generalized conclusion.   Keywords: Supply chain finance, effectiveness of the chain, qualitative approach, Moroccan companies. JEL Classification : L2 ; M20 ; M21 Paper type : Empirical researchfinanciers dans le Supply Chain Management. En effet, notre recherche porte sur l’identification des enjeux du Supply Chain finance dans le contexte des entreprises marocaines ainsi que sur l’étude du rôle du SCF dans l'efficacité de la chaîne par le biais d’une étude exploratoire. Sur la base d’une revue de littérature, nous avons discerné l’impact potentiel du SCF sur l’efficacité de la chaine . Sur le plan empirique, nous avons mené une étude qualitative exploratoire dont le but est d’examiner les connaissances des dirigeants marocains sur nos concepts clés en les interrogeant sur la manière à travers laquelle les problématiques de financement étaient abordées au sein de leurs entreprises. Pour ce faire, nous avons établi un nombre de dix entretiens semi-directifs. Ainsi, sur la base des résultats obtenus, nous constatons que le SCF est positivement lié à l’optimisation de l’efficacité de la chaine, car il permet de faciliter l’accès au financement pour les PME tout en offrant un équilibre entre les différents besoins parfois même contradictoires des acteurs de la Supply Chain. De façon générale, notre recherche contribue à la fois à la conceptualisation du SCF comme étant une ressource financière et à la fois comme démarche liée au supply chain management.  La principale limite de notre recherche est le fait de considérer les entreprises marocaines (PME) représente un défi, car il s’agit un nouveau contexte très peu exploré. Cette perspective peut se justifier par le fait que la majorité des études sur le SCF se sont principalement concentrées sur les pays développés et émergents. Ainsi, une analyse statistique plus poussée tel quel l’utilisation des équations structurelles serait nécessaire pour la justification d’une conclusion plus généralisée.   Mots-clés : Supply chain finance, efficacité de la chaîne, approche qualitative, entreprises marocaines. Classification JEL: L2 ; M20 ; M21 Type de l’article : Recherche empiriqu

The Cash Flow Advantages of 3PLs as Supply Chain Orchestrators

With an increasingly open global economy and advanced technologies, some third-party logistics providers (3PLs), such as Eternal Asia, have emerged as supply chain orchestrators, linking buyers with manufacturers worldwide. In addition to their traditional transportation services, these orchestrators provide procurement and financial assistance to buyers in the supply network, especially small- and medium-sized enterprises (SMEs) in developing countries. Oftentimes, the 3PLs can obtain payment delay arrangements from the financially stronger manufacturers, which in turn can be partially extended to the SME buyers, alleviating their high costs of capital. To illustrate the efficiency improvements of the aforementioned practice, we use a model to explicitly capture the cash-flow dynamics in a supply chain consisting of a manufacturer, a buyer, and a 3PL firm and explore the conditions under which this innovation benefits all parties in the supply chain so that the business model is sustainable. We characterize these conditions and show that the supply chain profit can be higher under leadership by the 3PL than by the manufacturer. The intermediary role of the 3PL is crucial, in that its benefit may vanish if the manufacturer chooses to directly grant payment delay to the buyers. We demonstrate that the benefit is more likely to occur with more buyers. We further identify the unique Nash bargaining solution for the transportation time and the payment delay grace period

The Roles of Bank and Trade Credits: Theoretical Analysis and Empirical Evidence

This study investigates the roles of bank and trade credits in a supply chain with a capital-constrained retailer facing demand uncertainty. We evaluate the retailer\u27s optimal order quantity and the creditors\u27 optimal credit limits and interest rates in two scenarios. In the single-credit scenario, we find the retailer prefers trade credit, if the trade credit market is more competitive than the bank credit market; otherwise, the retailer\u27s preference of a specific credit type depends on the risk levels that the retailer would divert trade credit and bank credit to other risky investments. In the dual-credit scenario, if the bank credit market is more competitive than the trade credit market, the retailer first borrows bank credit prior to trade credit, but then switches to borrowing trade credit prior to bank credit as the retailer\u27s internal capital declines. In contrast, if the trade credit market is more competitive, the retailer borrows only trade credit. We further analytically prove that the two credits are complementary if the retailer\u27s internal capital is substantially low but become substitutable as the internal capital grows, and then empirically validate this prediction based on a panel of 674 firms in China over the period 2001–2007

A test of inventory models with permissible delay in payment

Contrary to the long-standing view in the finance literature that firms should maximise payment delays, research in operations management suggests that long payment delays can be suboptimal. In this study, we reconcile these two views by applying a secondary data approach to established operations management theory. Based on a sample of 3383 groups of public US firms from a novel database, we find that our data are consistent with the causal relations and theoretical predictions of the operations management literature. Firm profitability is positively associated with payment delay. Payment delay, in turn, is positively associated with the capital cost difference between buyer and supplier and negatively associated with the price elasticity of demand and the deterioration rate of inventory. However, we do not observe any significant interaction effects between these factors, which raise a number of questions for future research

Trade credit, risk sharing, and inventory financing portfolios

As an integrated part of a supply contract, trade credit has intrinsic connections with supply chain coordination and inventory management. Using a model that explicitly captures the interaction of firms' operations decisions, financial constraints, and multiple financing channels (bank loans and trade credit), this paper attempts to better understand the risk-sharing role of trade credit - that is, how trade credit enhances supply chain efficiency by allowing the retailer to partially share the demand risk with the supplier. Within this role, in equilibrium, trade credit is an indispensable external source for inventory financing, even when the supplier is at a disadvantageous position in managing default relative to a bank. Specifically, the equilibrium trade credit contract is net terms when the retailer's financial status is relatively strong. Accordingly, trade credit is the only external source that the retailer uses to finance inventory. By contrast, if the retailer's cash level is low, the supplier offers two-part terms, inducing the retailer to finance inventory with a portfolio of trade credit and bank loans. Further, a deeper early-payment discount is offered when the supplier is relatively less efficient in recovering defaulted trade credit, or the retailer has stronger market power. Trade credit allows the supplier to take advantage of the retailer's financial weakness, yet it may also benefit both parties when the retailer's cash is reasonably high. Finally, using a sample of firm-level data on retailers, we empirically observe the inventory financing pattern that is consistent with what our model predicts