In managing their global supply chains, most companies are still leaving significant money on the table because they fail to take into account the supply chain finance opportunities that could bring millions in savings, says a new Aberdeen Group report "New Strategies for Financial Supply Chain Optimization: Rethinking Financial Practices with Your Suppliers to Maximize Bottom Line Performance."
Applying supply chain finance innovations can bring the next wave of cost savings into the global supply chain, especially if a company sources from emerging markets (i.e., has a low-cost country sourcing program). Supply chain finance helps a buying organization to:
* Optimize its working capital
* Extend payment terms
* Reduce product unit costs by taking advantage of arbitrage opportunities due to the higher cost of capital in emerging markets
* Reduce supply base risk by enabling faster and more predictable payments to emerging market suppliers
"Best-in-class buying organizations have notably better performance across key metrics, such as a 10-day advantage in their cash conversion cycle compared to laggards, and a 15-day advantage in Days Payable Outstanding with the emerging market suppliers," says Viktoriya Sadlovska, Supply Chain Finance Analyst at Aberdeen and a report co-author.
Companies that have focused on evaluating and revising their funding and payment strategies with their suppliers are achieving numerous benefits. The study shows that many companies have millions of dollars of value trapped in their current supply chain finance process that could be unleashed.
"Supply chain finance is instrumental for moving to the next level of cost savings and supplier performance, especially if you are dealing with suppliers in China and other emerging markets," says Beth Enslow, Senior Vice President of enterprise research at Aberdeen and a co-author of this report.