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Supply chain finance (SCF) programs often center on the buyer’s path to free cash flow, but innovative companies are finding — and purposefully investing in — supplier benefits, too. As a result, there’s an increase in overall resilience and growth potential of the supply chain.
Many businesses prioritize investing in their own strategic initiatives, but often do not put the same level of emphasis on investing in their suppliers. A question that often plagues treasurers and procurement teams is this: how do we get the most out of our supply chain while preventing it from getting static? And how can we bring so much value to our suppliers that they are able to reinvest in their own businesses, which in the end, positively impacts our business?
Supply chain finance is the answer to these questions. Giving suppliers the ability to access low-cost capital to reinvest in their companies is an initiative that strengthens the entire supply chain. Strong suppliers mean a strong supply chain, and buyers would be smart to ensure the health of their suppliers as disruption continues in almost every industry.
The most successful businesses are making investments in their suppliers through offering supply chain finance programs, and here are three reasons why:
Higher production volumes. Investing in suppliers’ access to cash equips them with the tools to grow their own business, allowing for the accommodation of higher production volumes. When buyers provide suppliers access to supply chain finance programs, suppliers can take advanced payment and use the cash to reinvest in production, meaning they can produce a higher volume to meet the growing needs of a flourishing business.
Better production capabilities. Offering a supply chain finance program to suppliers opens up the door to improved production capabilities. The cash deriving from early payment can be used to invest in better equipment as well as research to produce new products. Production capability is improved, which allows for a higher quality product overall and paves the way for specialized products and exclusive partnerships. This strategic investment is a benefit to both sides of the supply chain.
Stronger supplier relationships. Every buyer has strategic supplier relationships, and supply chain finance is a way to grow those relationships. For example, one grocery retailer wanted to localize their supplier base and was particularly interested in growing their business with a local strategic supplier. Since joining the retailer’s SCF program, the supplier became one of the retailer’s largest suppliers, invested in a new production line, and is on track to double revenue by 2020. Another added benefit to stronger supplier relationships is that when a supplier develops a new product, the buyer that they have the best relationship with is often given an exclusive sneak peek as a preferred customer, allowing them to be the first to offer a new product to the market.
Looking forward, more and more companies will explore supply chain finance, and the majority will find that offering an SCF program to suppliers creates a financially healthy supply chain overall. Both the buyer and supplier benefit from having access to cash to reinvest in their businesses, which promotes growth for every party involved. Not only does this create stronger relationships, it also creates a stronger, more efficient supply chain.
Nathan Feather is CFO of PrimeRevenue.
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