World Trade - February 2009 - (Page 18)

SUPPLY CHAIN FINANCE The current global credit and liquidity crunch has increased attention to working capital requirements, especially among overseas suppliers, who are being ﬁnancially squeezed and face higher borrowing costs. Sue Welch, CEO at TradeStone Software (Gloucester, Massachusetts), a supply chain technology company, notes that growing numbers of suppliers are exiting their businesses, closing factories. To protect the supply base, “more transactions are now based on the buyer’s balance sheet.” Viktoriya Sadlovska, SCF analyst at Aberdeen Group (Boston), a technology research firm, says a recent Aberdeen study on global risk management found that 13 percent of respondents saw weak supplier ﬁnances disrupting U.S. buyer operations. So, U.S. buyers have a stake in those ﬁnances. And, Drew Hoﬂer at Ariba notes that buyers with strong cash positions “have an opportunity to utilize their cash lucratively, and become ‘the bank’ for their supply chain.” Large corporations such as GE and Dell have been doing this for years. “They use their own cash to ﬁnance supplier early payment at rates that are far less expensive to suppliers than other options, and, at the same time, are more proﬁtable to themselves than alternative short-term cash investments.” Plus, it’s a win-win for both parties, he added, “particularly when that collaboration is facilitated by network technology” that allows thousands of suppliers early payment and the ability to access it at the click of a button. Injecting credit The seamless nature of electronics-supported supply chains has brought the capacity to bring credit to any place along its path, but, signiﬁcantly, to the places where it is needed most. That means that overseas suppliers, typically the weakest link, can often receive working capital at affordable cost. And, U.S. buyers can enjoy longer payment terms through the injection of bank credit. Delivery of ﬁnance is provided either directly by banks, when they are principals in managing the supply chain ﬁnance, or indirectly by banks, ﬁnance companies, and credit insurers, when technology groups are principals. The global banks that dominate the business maintain a substantial presence in East Asia, where most of the merchandise involved is produced. That helps them work directly with the suppliers, offering pre-shipment working capital, and work both sides of the transactions with suppliers and buyers in early payments and discounts. The technology ﬁrms in the ﬁeld keep saying, “We are not banks,” but they work closely with banks, ﬁnance companies, and credit insurers to make transactions happen with their supply chain customers. Some, like GT Nexus or TradeStone Software, offer portals and automation that support their customers’ relationships with their own banks. But others, such as TradeCard and Ariba, have ongoing formal relationships with ﬁnancing institutions and resources that they consistently bring into transaction management. Adam Aguilar, Dana Burleigh, Mick Noce and Brian Alexander of Unyson Logistics, A Hub Group Company

Table of Contents Feed for the Digital Edition of World Trade - February 2009

World Trade - February 2009 Contents Taking Stock in America Confronting Corruption in Latin America Supply Chain Watch Tradewinds Where's the Goods? Where's the Money? Hope on the Horizon Managing Fleets in Turbulent Times The Impact of China's Economic Slowdown on U.S. Supply Chains The Fuel Volatile Supply Chain Getting the Most from On-the-Fly Transactions Managing Supply Chain Risk by Managing China Sourcing Capacity OECD Global Economic Outlook for 2009 'Natural' Agricultural Monopolies No More

World Trade - February 2009

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