European CPOs need to improve their understanding of supply chain financing techniques, according to a new report.
Research by Demica, a US-owned provider of working capital software and consultancy, found that almost three-quarters of large European companies were seeking to extend their payment terms with suppliers in 2007. Automotive, food and drink, retail and high-tech were seen as the industries under the greatest pressure to achieve this.
Yet despite this, European CPOs were largely unaware of the methods available to improve their management of working capital without putting undue financial pressure on suppliers, it claims.
It is concerning that very few heads of procurement or chief procurement officers felt themselves to be the appropriate respondent for a survey focused on supply chain finance, and in almost every case directed researchers to their company’s CFO, said Phillip Kerle, Demica’s chief executive.
From our experience, it is evident that close collaboration between these business areas supply chain management, procurement and financial management is essential to enable the successful implementation of a supply chain finance programme and its continued effective operation.
Supply chain finance (SCF) works by enabling a supplier to obtain cheaper credit from lenders by borrowing against the buying company’s payables. This allows it to offer lower prices and increase its payment terms, from say 60 to 90 days, without sacrificing its cash flow.
Demica’s research found that SCF was expected to be the second most popular form of working capital financing technique used this year, after lines of credit from a relationship bank. Half of the banks surveyed said they were already providing it, with the other half actively planning to do so.
The biggest hurdle to financing a more equitable trading relationship was seen by customers to be the perceived need to change internal processes, and by suppliers to be the cost of implementation.