Executive Briefings

More Manufacturers Are Turning to Supply Chain Finance to Prep for Growth

Manufacturing is having a moment. Optimism on Wall Street and rising levels of consumer and business confidence have put manufacturing squarely back into growth territory. One index that tracks global manufacturing performance, the JPMorgan Global Manufacturing PMI, is the highest it's been since 2011. Production growth rates are at a three-year high. So is the rate of expansion in new orders. And factory payrolls are growing faster than they have in over five years.

By all indications, 2017 is shaping up to be a growth year for manufacturing. But a few concerns lie underneath the good news. Average input prices are rising and supplier delivery times are longer. While this is typical of growth pressures on the supply chain, it also underscores the challenges.

Growth, it turns out, can be messy. No matter how "optimized" the manufacturing environment may be, accommodating growth across the supply chain is a risky burden to bear. Rising production costs, new infrastructure projects, competitive R&D initiatives, acquisitions — these byproducts of growth require large sums of capital and flawless cash flow management.

AGCO, a global manufacturer of agricultural equipment, understands this well. Acquisition has been a highly successful part of the company’s global growth strategy for the last 25 years, but the implications on cash flow haven’t always been positive. As the company has increasingly consolidated its supply base, varying accounts payable practices and multiple ERP systems have made it difficult to manage cash flow. At one point, the company had more than 70 different supplier payment terms in North America alone.

Today, AGCO uses supply chain finance to standardize its accounts payable practices, improve cash flow and increase R&D investment — and they’re not alone. In a recent study conducted by Global Business Intelligence, one out of five companies surveyed uses supply chain finance. That number is expected to grow as companies seek new ways to access liquidity to fund growth initiatives.

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By all indications, 2017 is shaping up to be a growth year for manufacturing. But a few concerns lie underneath the good news. Average input prices are rising and supplier delivery times are longer. While this is typical of growth pressures on the supply chain, it also underscores the challenges.

Growth, it turns out, can be messy. No matter how "optimized" the manufacturing environment may be, accommodating growth across the supply chain is a risky burden to bear. Rising production costs, new infrastructure projects, competitive R&D initiatives, acquisitions — these byproducts of growth require large sums of capital and flawless cash flow management.

AGCO, a global manufacturer of agricultural equipment, understands this well. Acquisition has been a highly successful part of the company’s global growth strategy for the last 25 years, but the implications on cash flow haven’t always been positive. As the company has increasingly consolidated its supply base, varying accounts payable practices and multiple ERP systems have made it difficult to manage cash flow. At one point, the company had more than 70 different supplier payment terms in North America alone.

Today, AGCO uses supply chain finance to standardize its accounts payable practices, improve cash flow and increase R&D investment — and they’re not alone. In a recent study conducted by Global Business Intelligence, one out of five companies surveyed uses supply chain finance. That number is expected to grow as companies seek new ways to access liquidity to fund growth initiatives.

Read Full Article