Financing the End-to-end Supply Chain

A Reference Guide to Supply Chain Finance

Simon Templar, Charles Findlay, Erik Hofmann

• Publisher: Kogan Page
• Year: 2016
• Print ISBN: 9780749471415
• eBook ISBN: 9780749471422
• Edition: 1
• Topic: Business
• Subtopic: Finance
• Index: Business

Financing the End-to-End Supply Chain provides readers with a real insight into the increasingly important area of supply chain finance. It demonstrates the importance of the strategic relationship between the physical supply of goods and services and the associated financial flows. The book provides a clear introduction, demonstrating the importance of the strategic relationship between supply chain and financial communities within an organization. It contains vital information on how supply chain finance is operationalised and put into place. It is written in a user-friendly style, starting with the purchasing function, and linking together treasury, banking, supply chain, systems, IT, and key stakeholders.

Financing the End-to-End Supply Chain will help senior supply chain and procurement practitioners to build collaboration, improve relationships and enhance trust between supply chain partners. With its combination of theory and practice it tackles vital issues including physical, information and financial flows, and tailoring supply chain finance to individual organisations' circumstances. Recognising that supply chain finance means different things in different countries, the authors also consider various initiatives to harmonize and develop cross-border financing from the World Bank and other institutions, as well as including an agenda for national and international policy makers.

Financing the End-to-End Supply Chain offers a mix of academic and industrial expertise and is written by three authors who are experts in the field. The book contains ground-breaking research and data from the Cranfield School of Management.

Part 1

The background

01

Supply chain management and financial performance

1.1 Introduction

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Outcomes

The intended outcomes of this chapter are to:

• identify the impact that supply chain management decisions have on the financial statements of the organization;
• explain the relationship between supply chain management decisions on measures of firm performance;
• introduce a set of financial frameworks that are used in business to illustrate the impact that supply decisions have on the financial performance of a business.

By the end of this chapter you should be able to:

• describe the impact supply chain decisions have on the financial performance of the organization;
• identify how supply chain decisions impact on creating earnings, cash and value for a business;
• identify the financial impact of a supply chain decision on the profitability, liquidity and asset utilization of a business.

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Activities

We recommend the following:

• calculate and compare the return on total net asset ratio for your business, against one of your competitors, customers and supplier using the data contained in their financial statements;
• describe how supply chain decisions can impact on the financial ratios used to measure an organization’s financial performance;
• compare one of your recent current supply chain decisions using the five drivers of shareholder value. Did the initiative:
  • increase profitability?
  • reduce operating costs?
  • generate tax reductions?
  • increase non-current asset efficiencies?
  • reduce working capital?

Compare your organization with Porter’s value chain. Are there opportunities to increase value or gain a competitive advantage by reviewing primary and support activities with your business?

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This chapter supports the premise that there is a fundamental relationship between an organization’s management of its supply chain activities (external and intra) and the financial performance of the business. This impact, of SCM performance on overall business financial performance, forms the basis for the discussion in the next chapter, which focuses on one component of that financial performance – working capital (WC). Subsequent chapters then describe SCF’s potential impact on both WC and overall supply chain competitiveness and so, using the arguments in this chapter, on overall firm performance. Borsodi (1927: Preface) recognized the importance of understanding distribution and production costs and their impact on financial performance:

In the fifty years between 1870 and 1920, the cost of distributing the necessities and luxuries which we consume, has nearly trebled, while the cost of producing them has been reduced by more than one-fifth… It is evident that what we are saving through lower costs of modern methods of production, we are losing through the higher costs of modern methods of distribution.

Christopher (1998:100) emphasizes the importance of understanding the special relationship that logistics has on the financial success of an organization:

It is likely that in the future, decisions on logistics strategies will be made based upon a thorough understanding of the impact they have upon the financial performance of the business.

Notably, Christopher stresses that the decisions taken by logisticians will have an important impact on an organization’s income statement and balance sheet, but also on the shareholder value and economic value added...

Table of contents

• Cover
• Praise for Financing the End-to-end Supply Chain
• Title Page
• Contents
• Foreword by Michael Henke
• Foreword by Michiel Steeman
• Foreword by Joost van Beem
• Acknowledgements
• Introduction
• PART 1 The background
• PART 2 The current practice
• PART 3 The future
• Index
• Copyright