Chapter 5 Bankable supply chains: Safeguarding financial security

Bankable supply chains:
Safeguarding financial security

In brief:

Safeguarding a supply chain’s financial security is critical. Supply chain resilience is highly dependent on the financial strength of every supplier in every tier, ensuring that each has enough working capital to meet obligations. Yet the research shows a wide gap between ambitions for financing and action across all ten elements tested (see Figure 13), especially for indirect suppliers.

Figure 13: Financial robustness elements tested

For larger, tier one suppliers, financing is often not a problem. Traditional supply chain financing solutions abound. But the smaller the supplier, and the farther it is from the customer, the fewer the financing options available. In many cases, supply chains include small enterprises that are unable to easily access financing, creating financial risk in the system.

We partner with the banks using the goodwill of our organisation. Suppliers then get paid early and at a rate that is cheaper than the rates from a commercial bank. So you see that everything boils down to viewing suppliers as partners.

Treasurer
FMCG, Nigeria

But not all companies recognise this problem, or offer solutions. A significant number of survey respondents regard indirect suppliers’ financial stability of lower priority. When it comes to including indirect suppliers in supplier finance programmes, respondents not only rate them as considerably less important than direct suppliers, but also focus less on making financial solutions available.

But this doesn’t mean all is rosy for direct suppliers. While more than half of respondents say including direct suppliers in supplier finance programmes is very important, only two in five companies believe they do this very well.

In addition, seven in ten respondents report that financial fluctuations such as price and currency volatility are sources of significant risk that negatively impact their businesses.

We are having active discussions with our banks where they are helping us understand how we can better manage the impact of foreign exchange risk on our supply chain products, particularly in markets where the currency is very volatile.

Finance Director
Technology, USA

A good example of how financial exchange risk can be mitigated and finance made available throughout supply chains is the strategic collaboration between Standard Chartered and SAP Ariba. Buyers using the Ariba Network, the world’s largest digital business network, can seamlessly manage their payments and supply chain finance needs. Meanwhile, suppliers get quicker access to financing and foreign exchange via Standard Chartered’s global network.

Paying India’s truckers for last-mile deliveries

For Deutsche Post DHL in India, 3PL truckers are an essential resource. Paying them quickly and efficiently secures the smooth running of last-mile deliveries on a huge scale.

The company’s Indian digital road freight logistics platform lists orders that thousands of independent 3PL truckers can choose to accept. This is an efficient model, but it depends on transparent payment, partly in advance.

The truckers are paid 20% on accepting the order and the remaining 80% on delivery. Deutsche Post DHL makes the payments through an instant payment system provided by Standard Chartered, which allows the truckers to see the funds have been received as soon as the payments are made.

The purpose of the system? Not just making the payment but also transparency, especially ensuring the trucker can see that the initial 20% payment has been made in advance.

When it comes to truckers in India, we’re securing a critical resource. By keeping them well financed you keep the resilience of the entire supply chain, end-to-end right to the last mile.

Stephen Hogan
Vice President, Regional Treasury Asia Pacific, Deutshe Post DHL

Telecoms best for finance

Some sectors rank themselves as better at finance than other industries. Telecoms companies give themselves the highest ratings for the financial resilience of their supply chains, while automotive companies report lower performance, as do oil & gas and pharmaceuticals.

North America leads regions

North American companies rank themselves most highly for financing their supply chains. By contrast, Middle Eastern and European companies report lower performance.

Another key finding is that financial analysis is still easier than financial action. Using models to predict future supplier demand is ranked far above actually accessing supply chain finance options.

Figure 14: Financial access lags financial analysis

There is a wide range of supply chain finance options already with us, and we continue to develop innovative solutions that address specific needs and incentivise positive ESG performance.

Kai Fehr
Global Head, Trade and Working Capital, Standard Chartered

We also offer advice on peer benchmarking and ESG ratings, linking access to sustainable finance via improved ESG metrics.

Daniel Hanna
Global Head, Sustainable Finance, Standard Chartered

Top tip:

The onus is on banks to develop innovative solutions to make financing available throughout companies’ supply chains. Ask your bank how it can help you.

Standard Chartered works with customers and partners to finance underlying goods that meet agreed sustainability standards. The bank also supports trade for clients’ suppliers who meet acceptable thresholds against ESG ratings or metrics such as gender equality, responsible sourcing criteria and water use. With a presence in Asia, Africa and Middle East, Standard Chartered is able to apply these principles across complex global supply chains, leading to more efficient and meaningful implementation of solutions.