A 2020 McKinsey ‘Global Payment Report’ stated: “Significant value in the global supply chain finance (SCF) market remains untapped. Nearly 80% of eligible assets do not benefit from better working capital financing, and the remaining one-fifth of assets are often inefficiently financed. Despite improvements made in recent years, advances have been largely incremental.” This indicates a massive missed opportunity to optimize financial efficiency within global supply chains.
Additionally, the report highlights that even the remaining one-fifth of assets that do receive financing often face inefficiencies. This suggests that the current financing methods for supply chain assets are suboptimal, calling for more effective solutions and innovative approaches.
The Problem
Experts from diverse backgrounds have commented on the state of supply chain finance and the untapped value it holds. Their perspectives shed light on the significance of this issue and the potential for improvement. Here are a few examples:
Tim Breedon, former Group CEO of Legal & General, emphasized the importance of efficient supply chain finance, stating that “maximizing working capital efficiency, including more effective supply chain finance, can generate substantial benefits for both businesses and suppliers” (Breedon, 2014).
An article published by The Economist highlighted the need for improved financing options within the supply chain, stating that “supply chain finance has the potential to enhance liquidity and operational efficiency by providing financing alternatives to businesses facing credit challenges” (The Economist, 2019).
In a publication by the World Economic Forum, Pauline Bush, Global Head of Transactional FX Sales at HSBC, noted that “a comprehensive supply chain finance solution can help companies streamline processes and optimize their working capital” (World Economic Forum, 2018).
Sandy Kemper, CEO of C2FO, commented on the incremental nature of advancements in supply chain finance, stating that “disruptive innovation, rather than incremental changes, is key to revolutionizing the supply chain finance industry” (Kemper, 2019).
A report by PwC (PricewaterhouseCoopers) emphasized the importance of improving access to supply chain finance, stating that “enabling greater collaboration between buyers and suppliers and facilitating supply chain finance is critical for businesses to optimize working capital” (PwC, 2017).
Possible Solutions
To address the untapped value and inefficiencies in the global supply chain finance (SCF) market, several possible solutions can be explored.
One potential solution is the adoption of technology-driven platforms that facilitate supply chain finance. These platforms can streamline processes, enhance transparency, and provide efficient access to financing for both buyers and suppliers. By leveraging technologies such as blockchain, artificial intelligence, and data analytics, these platforms can enable faster and more secure transactions, improve risk assessment, and optimize working capital management.
Another approach is to promote collaboration and partnerships between financial institutions, businesses, and technology providers. By working together, stakeholders can develop innovative financing models and create integrated ecosystems that improve access to working capital financing throughout the supply chain. Such collaborations can leverage the expertise and resources of different parties to design tailored solutions that address the specific needs of businesses and suppliers.
Furthermore, policymakers and regulatory bodies can play a crucial role in promoting a supportive environment for supply chain finance. By implementing conducive regulations, governments can encourage financial institutions to invest in SCF solutions, reduce barriers to entry, and facilitate cross-border transactions. Policy measures that enhance legal frameworks, standardize documentation, and protect data privacy can foster trust and confidence in supply chain finance.
Regarding the term “disruptive innovation,” it refers to revolutionary and transformative changes in a particular industry or market. In the context of supply chain finance, disruptive innovation involves the introduction of groundbreaking technologies, business models, or approaches that challenge traditional practices and significantly improve the efficiency, accessibility, and effectiveness of financing solutions. Disruptive innovations can reshape the dynamics of the SCF market, redefine industry standards, and bring about substantial positive changes.
In Summary
Possible solutions to the untapped value and inefficiencies in the global supply chain finance market include leveraging technology-driven platforms, fostering collaboration and partnerships, and implementing supportive regulatory frameworks. Embracing disruptive innovation entails introducing revolutionary changes that challenge existing practices and drive significant advancements in the field. By implementing these solutions, the SCF market has the chance to unlock its full potential and provide better working capital financing options for businesses and suppliers globally.
