What do a U.S. manufacturer, a Swedish retailer and a South African pharmacy chain all share in common? Hillenbrand (U.S.), ICA Group (Sweden) and Dischem Pharmacies (South Africa) battled it out with four other global firms recently at the 2018 Supply Chain Finance Awards.
Held Nov. 29 in Amsterdam, sponsored by global financial institution ING and organized by the Supply Chain Finance (SCF) Community, a global entity of professionals, private firms and knowledge institutions, their annual awards not only recognize achievements in the larger SCF world but also promote greater unity and collaboration as it grows and matures.
With industrial value chains becoming increasingly complex, manufacturers in 2018 relied heavily on interlocking supplier networks. More actors equate to increased risk, principally because parties do not know one another, and many times they are working across time zones and borders where physical relationships are nearly impossible to foster. Through shared new research and best practices, the SCF Community is helping to reduce complexity and risk and keeping cash liquid, something that benefits both sides of a transaction.
A typical contract is comprised of a buyer and a supplier. Each have distinct interests but both desire at least one thing in common: optimized cash flow. This produces a natural conflict as the buyer seeks to delay payment (to retain their cash) and the seller needs to release the product and invoice the buyer to receive payment as quickly as possible. With SCF, there is a third actor added to the mix–the funder or financing institution–which buys receivables or invoices at a discount from suppliers. The suppliers get their cash quickly and the bank then deals directly with the buyer.
The SCF process encourages collaboration instead of fomenting competition, which is a natural extension of a relationship where both parties desire the same, individually advantageous outcome. And SCF works even better when the buyer possesses a superior credit rating to the seller. A savvy buyer will use this to negotiate better terms from the seller, but the seller can also capitalize immediately by selling its receivables to the financing institution for immediate payment.
SCF at a Glance
It is useful to understand the SCF concept at a macro level because it does a lot of things but not everything. As such:
1. Not a loan – For the supplier, a true sale of its receivables is on the books, so supplier finance is simply an extension of the buyer’s accounts payable. Thus, the process is not considered a financial debt.
2. Multibank capacity – More than one financial institution can take part in the process, which adds a tremendous amount of flexibility.
3. Not factoring – In most circumstances, the supplier receives payment on the invoice (minus a standard transaction fee). Once the invoice is settled, there is no recourse burden on the supplier.
4. Equal opportunity – The beauty with SCF is it provides value not just for large companies but firms of all sizes (and credit ratings). This also includes SME suppliers.
The 2018 Supply Chain Finance Awards jury, composed of the leading minds from the Fraunhofer Institute, the Luxottica Group, Nestrade S.A. and Metso, had its hands full this year. On the Transport & Logistics side, Kuehne + Nagel Group took home the award for Best SCF Solution. The Swiss-based holding with 1,336 offices worldwide and more than 75,000 employees had bested DHL Global Forwarding, Panalpina and DB Schenker in accounting for roughly 15 percent of the word’s sea and air freight business revenue.
This year, Logistics Kuehne + Nagel added an SCF layer on an already efficient Tradeshift e-invoicing platform, which now provides an unparalleled amount of transparency with regards to invoice status as well as all relevant SCF information. For small and medium-sized suppliers, early payment options are critical, and the Kuehne + Nagel solution gives them the ability to create invoices quickly online, which can result in payment within a matter of days.
The cash-conversion cycle lies at the heart of the matter with, again, both buyer and seller seeking to either maintain liquidity or add liquidity as soon as possible. The jury recognized Kuehne + Nagel’s ability to not only improve on this cycle but also advance the relationship between buyer and supplier, a natural win-win and one that the SFC Community seeks to foster. Kuehne + Nagel works with Citi to offer early payment options to more than 16 North American and European countries, spanning eight currencies. Asian and the Middle East are next for 2019.
Speed is crucial, and this is an area where Kuehne + Nagel set itself apart, having been recognized in the 2017 Adam Smith Awards in the category “Best Trade/Supply Chain Finance Solution.”
To stay abreast on news surrounding the 2019 awards, visit the regularly updated SCF Forum website: www.scf-forum.com/venue.html.