|
|
| Home |
Focus Areas
Accounts Payable
Procurement
B2C Collections
B2B Collections
Finance & Accounting
C2B Payments
Credit Management
Healthcare
Quick Finder
Webinar Archive
SolutionSource
Contact PayStream
Vendor Services
Corporate Services
PayStream Voices
Home
Read More
The Eight Building Blocks of Supply Chain Finance & Discount Management
Supply Chain Financing: Optimizing Working Capital through the strategic use of financing and discounting in the supply chain
Key Issues
During the next five years, how will business strategies, processes, and technologies, evolve to enable enterprises to improve the use of working capital tied up in trade payables and receivables?
What is SCF/DM, how will it evolve, and what drivers are emerging to force its adoption?
What will be the role of senior finance executives in successful SCF/DM initiatives?
Strategic Planning Assumptions
Through 2007, 90 percent of successful SCF/DM initiatives will balance the needs of improved supplier relationships with working capital improvements.
Enterprises that have a wide differential between theirs and their suppliers cost of capital are twice as likely to achieve all SCF/DM and Discount Management goals.
SCF/DM initiatives need a framework to ensure that programs are approached on a strategic basis which bridges both the Supply Chain and Finance organizations. We introduce such a framework to help enterprises implement “integrated” SCF/DM and maximize benefits.
To achieve the long-term value of Supply Chain Finance and Payables Discount Management (SCF/DM), organizations need to adopt a strategy involving the both Procurement and Finance and therefore initiatives should be approached at an enterprise level. So far, only a limited number of enterprises have stepped up to this challenge and are implementing what PayStream Advisors calls “integrated” SCF/DM optimization. This number is steadily rising, as enterprises begin to achieve benefits in their first attempts at SCF/DM and realize what really needs to be done. Recent research shows that many enterprises are still implementing SCF or DM programs, not truly integrated projects.
When we focus on planning, as opposed to implementation, PayStream estimates that:
- Nearly 30 percent of surveyed enterprises have plans that would fit the integrated SCF/DM description.
- Approximately 50 percent of those are planning a Level I approach
- Less than 20 percent are planning an integrated approach which brings together buyer/supplier collaboration with electronic invoicing.
- More than 15 percent are considering global initiatives to inject third party financing into their supply chains
Integrating SCF/DM is not easy. It requires board-level vision and leadership to drive a “focus on unleashing working capital from the trade payables and receivables,” otherwise it will remain fragmented. It involves difficult changes to processes, and external organization that can make implementation difficult. Organizational and cultural barriers exist between Supply Chain/Procurement and Finance managers making clear thinking on SCF/DM difficult.
The technology support seems easy — but it isn’t. Technology staff must grapple with the challenges of multichannel alignment, systems integration and data quality. Even if the board accepts the need for enterprise-level SCF/DM, the quarterly demands of revenue and profit targets, especially in delicate economic conditions, make SCF/DM the most important challenge facing an organization, but not the most urgent. This typically results in a focus on tactical “quick wins” until conditions are better.
The main reason enterprises are not implementing integrated SCF/DM is an inability to see the big picture and understand what is involved. Just as a map helps you understand the context of your journey (the roads you need to navigate and alternative routes), so the SCF/DM framework helps enterprises make decisions about the best route and objectives for their situation.
Following an analysis of several enterprises, PayStream Advisors has created a SCF/DM framework, or map, called “The Eight Building Blocks of SCF/DM” (see Figure 1) to help enterprises see the big picture, make their business cases and plan their implementation. The framework can be used for internal education and debate in developing the SCF/DM vision and SCF/DM strategies. It can then be the basis of an assessment of the enterprise’s current and required SCF/DM capabilities, to help understand its current position and future strategy. Using this framework, PayStream Advisors is currently profiling several enterprises that are great examples of SCF/DM at work.
Core Topic
Supply Chain Financing: Optimizing Working Capital through the strategic use of financing and discounting in the supply chain
Key Issues
During the next five years, how will business strategies, processes and technologies evolve to enable enterprises to improve the use of working capital tied up in trade payables and receivables?
What is SCF/DM, how will it evolve, and what drivers are emerging to force its adoption?
What will be the role of senior finance executives in successful SCF/DM initiatives?
Strategic Planning Assumptions
Through 2007, 90 percent of successful SCF/DM initiatives will balance the needs of improved supplier relationships with working capital improvements
Enterprises that have a wide differential between their and their suppliers cost of capital are twice as likely to achieve adopt SCF/DM and Discount Management goals.| Copyright © 2008 PayStream Advisors, Inc. The Business of Ideas ® |
|