Financial Supply Chain Management

New appointments in the supply chain finance arena provide further confirmation if any was needed that this is a space to watch. Crossflow Payments, a relatively new entrant, has just announced the appointment of Tony Pinn, former Head of Supply Chain within Trade Finance at Barclays, to a director position.

I’d grown accustomed to the sunshine that we’ve enjoyed in the UK for most of the summer and yesterday, ill-equipped for normal British weather, I got soaked, literally to the skin, in an unexpectedly heavy rain shower in London. Summer’s almost gone and there’s definitely a change in the air. It’s been a long time coming but now the convergence of demand for liquity amongst cash strapped small businesses and the supply of alternative funds seems to be happening. There was some big news on these lines last week when OB10’s acquisition was announced. There’s a few new players joining the market that we’ll hear a lot about in the coming weeks. All of this is very interesting but today’s news is quite simply breathtaking. Tradeshift signaled some time ago that they were going to be leveraging their platform to deliver some form of supply chain finance offering to support small businesses but today they’ve lifted the lid on their plans and revealed exactly what it is they’ll be doing. In a nutshell it’s this: $3 billion.

Taulia has a world-class product that gives customers a high return on their cash balances while putting affordable working capital in the hands of suppliers. Dynamic discounting is a simple model and very effective but Taulia have always had one big problem – they only serve SAP customers. Because their dynamic discounting solution is native to SAP, there’s a huge market that they simply can’t access. But now there’s a team that can access the non-SAP market – they’re called Taulia.

Sometimes, great ideas just never take off because some prerequisite solution to a problem hasn’t been solved. E-procurement was a great idea in the 1990’s but until the internet was ubiquitous and trusted, it was slow to take off. Looking back, the trust and ubiquity grew quite quickly but in 1996, if we had a crystal ball that said it would take the best part of a decade to become an established way of doing business, I wonder whether we’d have given up. We didn't know that the problem was trust and ubiquity until it was solved.

We have highlighted many times the challenges of working capital management. It’s become a cliché to refer to the “perfect storm” – the combination of virtually zero interest rates and constrained liquidity that gives both cash rich, large businesses and cash strapped suppliers a headache. But every cloud has a silver lining. Better working capital management provides an opportunity and now, REL, the specialist working capital arm of Hackett, has revealed the size of the prize, in Europe - a total of €762bn is tied up in excess working capital - equivalent to 6 per cent of EU GDP!

When anyone tells you something is a win-win, they’re usually lying. Where there’s a winner there’s always a loser. But sometimes it does look very compelling. Supply Chain Finance (SCF) offers the possibility of a supplier getting paid early, lowering their cost of working capital and at the same time, the buyer gets to extend their DPO. When something looks too good to be true it usually is. There must be a catch. And actually, there is.

Isn't it interesting how opposites attract. When the circumstances are just right, people, businesses, natural elements and chemical compounds bind together in synergistic relationships of mutual self interest. Successful supply chain partnerships are just like that and collaborations between very different businesses can create profitable partnerships in which the whole is much greater than the sum of the parts. And isn't it disappointing when different parts of the same organization repel each other like the poles of a magnet. You would think that procurement and finance divisions of the same business would have a similar agenda but when it comes to some matters of finance, buyers have more in common with their suppliers than they have with their own finance people.