Many business leaders erroneously believe that merely having a supply chain finance (SCF) program in place is enough to guarantee success. From my experience, I can safely assert that this is not true. In fact, it’s just the tip of the iceberg.
Let’s say you’ve completed an SCF implementation with a big name bank on board and integrated technology to handle supplier transactions. Great! These are critical steps towards your ultimate goal of increasing cash flow and reducing risk in the supply chain. But what good does it do you if no suppliers see the value in what you are offering? Even worse, what if there is no actual value in what you are offering your suppliers? Your banks might have all the cash in the world to advance to your suppliers, but your suppliers may be completely uninterested.
If you haven’t carefully considered the details of your SCF program, then you’ve really only gained hypothetical benefits. To gain the full benefits of supply chain finance, you need to pay attention to the details and do the hands-on work that drives suppliers to adopt the program.
Here’s my step-by-step advice to getting “the full iceberg” out of your SCF program:
- Identify a sensible fixed lending rate with your single bank solution, or employ a competitive multi-bank solution that will offer a lending rate that suppliers can’t get on their own. You wouldn’t believe how many companies settle on an inflated rate that their bank suggests, and the rate is way too high for any suppliers to want to participate in the SCF program. Multi-bank solutions are less prone to rate inflation due to the competitive nature of the lending.
- Perform an exhaustive analysis of your spend file to determine which suppliers offer the easiest, biggest gains and prioritize them accordingly. Too many companies skip this step, and then kick off their program by getting into the weeds with low-value suppliers. That’s not a winning proposition. Start with the easy wins, like standardizing pay terms for your large suppliers who have various business units on different pay terms. Work hard to get your highest value suppliers on board according to their potential cashflow value gain to your company.
- Kick off the program with a clear set of communications to your suppliers. Explain the benefits of the program, the changes to their payment terms, and the process by which they will be managing their receivables. Send emails, follow up with phone calls, and have dedicated training websites set up to answer questions that will help win over your suppliers.
- Offer a dedicated service team whose sole focus is answering supplier questions, responding to supplier concerns, and alleviating any anxiety about how the new program will work. A little hand holding will go a long way to getting your suppliers on board. I’d consider anything less than a 35% supplier participation rate as a disappointment.
- Make sure your SCF program uses technology that is easy enough to set up and use in a self-service capacity. You want your suppliers to be able to manage their payments on their own, without draining your support resources.
- Track and analyze your success diligently. Analytics and refinement are critical to getting the full value out of your SCF iceberg.
Hypothetical benefits are nice and all, but saving actual millions of dollars every week is a much more attractive proposition. I hope this guide offers a roadmap for all companies to get the most out of their SCF programs.
