Financing the Chain

As new services come to market, finance executives are taking a second look at supply-chain finance.

Gaining an Edge

Roche sees more companies catching on, however. “Last year at a conference, I was the only one presenting on [supply-chain finance],” he says. “This year there were five different presentations on the same topic.” Other providers aiming for a piece of the evolving market include TradeCard, a New York–based company that works mainly with retailers; boutique banks, such as SCF Capital in London; and branches of various large financial institutions, such as HSBC and ABN AMRO.

Sainsbury’s eventually chose the PrimeRevenue system to allow suppliers access to their approved invoices for trade. “Enabling them to get access to sources of funds potentially using our borrowing rate rather than the rate they might be used to using is very, very attractive,” says Darren Shapland, Sainsbury’s finance chief.

Helping its suppliers will ultimately benefit the grocer as well. “We have one overarching objective in rolling out this program,” says Learmont, “which is to make the terms and commercial relationship we can offer our suppliers as attractive as possible, to make sure we obtain the best products on the best terms from them.”

The company pushed to be the first in its industry in the United Kingdom to roll out such a system, in hopes of gaining an edge with suppliers and strengthening its supply chain overall. Other companies may look at improved supply-chain finance practices as a carrot to offer suppliers to encourage them to tackle a big, expensive project, such as adopting radio frequency identification technology.

From a supplier’s perspective, even for a company with an investment-grade credit rating, the simple ability to monitor invoice status provides a strong incentive to participate when a customer rolls out a new supply-chain finance system. “You know if an invoice is blocked for payment or if it hasn’t been entered for some reason,” says Stephanie Bice, accounts-receivable manager at Air Liquide Electronics U.S., a supplier to the semiconductor industry that was an early user of the PrimeRevenue system after its largest customer rolled out the service in 2004. “A lot of times as a supplier you’re not sure whether an invoice was received or whether a customer will pay within terms.”

The willingness of suppliers like Air Liquide to participate will be critical to the success of any supply-chain finance system. Third-party providers have taken that into account, considering the potential technology limitations of vendors, especially in less-developed countries. Because the new systems are Web-based, suppliers will simply need an Internet connection to access them. “All they need is a Web browser,” says Orbian’s Roche. “There’s no integration.”

However, getting suppliers around the world to voluntarily adopt new supply-chain finance practices will require a significant communications effort. Both Big Lots and Sainsbury’s have supplier-education plans in place. Sainsbury’s discussed the new system at its supplier meeting last November and is now preparing a team to meet with suppliers on an individual basis to explain the concept in more detail. Big Lots sent mailings to targeted vendors and followed up with phone calls from the merchandising department, vendors’ most frequent point of contact at the company. The callers then encouraged those who expressed an interest to contact Poff or PrimeRevenue, which has a vendor-education department. “We want to make sure vendors understand what we’re offering and why it’s a benefit to them,” says Poff.

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