A holistic framework connecting the ‘finance oriented’ and the ‘supply chain oriented’ perspectives is therefore needed. The results show how working capital requirements and the cost of finance represent the key parameters to assessing the benefits of the concurrent adoption of multiple SCF schemes. Recent years have seen a proliferation of different SCF schemes, with different impacts on working capital costs and requirements throughout the supply chain. Supply chain finance (SCF) is a collaborative financing approach that strives to reduce the transaction cost and strengthen inter-firm connections, maximizing the mutual benefits. Given the importance of supply chain digitalisation in this digital era, this study provides an analysis of the extant literature on digitalisation and SCF published in the last 82 (1941–2023) using scientometrics and bibliometric analyses.
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- In our data, we also observed that support did not stop at tier-1 suppliers.
- Based on the social capital theory and transaction cost economics, we develop a dual-theory framework to explain SCF adoption.
- They also adjusted their SCF program so that more suppliers qualified and would get paid more quickly, and BHP began paying suppliers right away.
- Banks also act as funders, providing cash in SCF programs of third parties.
- This became especially clear when the appetite for cash was increased as it was during the first few months of the crisis.
This means that no central actor guides the fate of the SCF ecosystems, sets standards, or defines interfaces. Thus, the ecosystems provide processes and rules on how to resolve coordination issues. From the client’s point of view (buyer or supplier), such multi-bank approaches can achieve a geographic coverage of SCF practices and reduce a bank’s potential default risk (Hofmann et al., 2017).
Cross-case analysis: from data structures to a model
Blockchain is seen as one of the key technologies that will enable inventory financing because it is critical that stock is correctly identified and monitored. In particular, the supply disruptions during the pandemic have increased the need for such solutions. In PO financing, the funding would be received by the supplier much earlier than reverse factoring.
Products and services
- Value creation in the SCF ecosystem has required orchestration among actors as a loosely coupled system (Dhanaraj and Parkhe, 2006).
- One of the most commonly expressed notions is the lengthening of payables and the shortening of receivables for buyers and suppliers.
- Overall, we explore how the SCF community as a business service ecosystem has intervened to provide organizations with opportunities to improve their liquidity.
- The third level consists of the regulatory and governmental agency actors, including governments, regulatory agencies, and credit rating agencies.
- Ecosystems, in turn, enable these independent modules to be combined in new ways to form various service bundles (Baldwin, 2012).
Central banks and regional development banks began acting as providers of SCF-related solutions to cash-strapped buyers and suppliers. They promoted SCF programs to bring liquidity to physical product SCs so that the buyers and suppliers could function and continue to produce goods and services. Since they had the relevant data on various players in the SC, they believed they were in the proper position to help suppliers by offering financial services along with shipping services. The governments tried to bring various options to banks and other SCF actors to provide more liquidity to buyers and suppliers. This shift was necessary because, with the crisis, banks saw a downturn in their cash management side of the business, and they remedied that situation by moving into the fintech business. In SCF ecosystems, the buyers or suppliers can choose among the service components of SCF practices offered by each FSPs.
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Another bright spot was LSPs recovering from the early downturn from the COVID-19 crisis. They also adjusted their SCF program so that more suppliers qualified and would get paid more quickly, and BHP began paying suppliers right away. The consequence was suppliers taking on speculative inventory risk at a time of great uncertainty.
China Federation of Industry and Commerce launched an SCF service, in collaboration with several banks, that would provide A Contribution to the SCF Literature close to $1B to over 100 buyers and suppliers in loans. By injecting liquidity, central banks tried to ensure that FSP and buyers and suppliers can survive the resulting economic situation. Rating agencies discouraged fintechs and banks from supporting SCF practices that could mask financial stress in companies. On the other hand, larger and financially stronger buyers sought cooperation with banks to be able to support their smaller SME suppliers.
Erik Hofmann
Therefore, we refer to the sum of interacting organizations as the SCF ecosystem. Because of the ubiquitous media presence, we were able to track the behavior of the organizations exhibiting what appeared to us the characteristics of an ecosystem (Moore, 1993). While they were united in their quest to survive, they displayed different reactions to the emerging crisis. During COVID-19, organizations from different industries used a wide range of SCF practices. To calm the markets and stabilize SCs, governments and their affiliated agencies (i.e., central banks) have intervened far beyond the usual (Krsanac, 2020).
3. SCF ecosystem
A first practice has emerged regarding the possibilities of early payments from buyers to suppliers created by FSP. However, with cash-strapped buyers, some fintechs found external funders. In particular, actors such as the World Bank or development banks (i.e., Asian Infrastructure Investment Bank or New Development Bank) should be mentioned in this context. For example, the PPP loans backed by the U.S. government were disbursed by financial institutions (i.e., banks). In the UK, the government set up an intermediary to buy commercial paper from large buyers to facilitate a faster payment to SME suppliers’ invoices.
Information technology advancements integrated with the e-commerce supply chain allow participants in the business process to effectively work with large volumes of data and control transactions. The purpose of this paper is to study how advanced information about customer needs obtained through an Advance Purchase Discount (APD) contract can be exploited to coordinate the capital flow and enhance the efficiency of a two-stage supply chain (SC) under decentralized control in cases of stochastic customer demand. The main aim behind this empirical research is to investigate the impact of the adoption of the supply chain financial solutions on the supply chain financial flows of manufacturing firms listed in Indonesian Stock Exchange. Results show that financing through the capital market is the best choice in the supply chain of the survey. It is extensively noticed that although various financing sources are available today; issue in choosing the proper one in order to decrease the cost of capital investment with the most effectiveness, still remain in supply chains. Moreover, an emphasis is given on the contemporary aspects of FSCM in terms of collaboration among companies, suppliers and financing institutions.
Some governments also promote digitization and automation, encouraging the development of new SCF solutions. When SMEs face difficulties raising WC, public authorities can intervene by injecting liquidity in the corporate credit market through funding programs. They enable collaboration between the focal company’s internal systems, its suppliers and customers, and FSPs (Botta et al., 2020).
Specifically, a fintech can gather financing from multiple sources, while a bank predominantly relies on its own balance sheet. The interviewees believed that this particular action strengthened the market for SCF assets and ensured adequate liquidity. Regional development banks (i.e., Asian Development Bank) actively facilitated medical and pharmaceutical goods.
The SCF actors existed before COVID-19 and began adjusting to the new circumstances with the crisis’s spread. The SCF ecosystem did not appear spontaneously; ecosystems result from deliberate experimentation and engineering from various actors (Jacobides et al., 2018). What is unique about exploring the SCF ecosystem is not the response of a single actor or the interventions between specific groups of actors. The crisis caused by COVID-19 slowed down the flow of money within SCs, increasing the need for SCF mechanisms to improve the cash flow. This complementary behavior is moderated by the industry affiliation, the importance of suppliers, and cash constraints.
Even the task of supply chain managers begins with the financing and capital budgeting decisions of value creation relevant investments and ends only after the payment from the customer is received. SCF solutions are usually supported by ICTs (Information and Communication Technologies), and can be based on early payments, trade process visibility, supply chain collaboration and enhanced information sharing with financial institutions. In the last 10 years new financing opportunities – known as “Supply Chain Finance” or “SCF” – arose, exploiting the strength of the supply chain links to optimise the working capital and create value for the organisations involved. To do this, SCF involves the coordination of supply chain actors, SCF instruments and supply chain processes. At the writing of this study in September of 2021, the COVID-19 crisis was still ongoing.
Fintechs saw a surge in demand because both buyers and suppliers needed their services. A logistics player tried to expand their business model to include financial services. Primarily, it should be mentioned that it is an ecosystem of business services. The companies operating in the SCF ecosystem can now serve markets, i.e., SCF demand from physical supply chain actors, on a scale that goes beyond the capabilities of the single firm. First of all, it should be mentioned that it is an ecosystem of business services.
One major trend is the increasing scope and popularity of fintech services. This happened in industries where the buyer was not heavily affected by the pandemic or buyers with solid financials. Some of them voluntarily paid their smaller suppliers early during the most active phase of the COVID-19 crisis, April through June of 2020. This became especially clear when the appetite for cash was increased as it was during the first few months of the crisis.