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Benefits of Global Supply Chain Finance
The purpose of GSCF is to optimize both the availability and cost of capital within a given buyer-supplier supply chain. GSCF achieves this by summing up all information gathered during the supply chain process and matching this data with the physical control of goods.
This comprehensive information as well physical control of stock allows the lenders to eradicate risk within the supply chain. The eradication of risk enables more capital to be raised, faster access to capital, etc.
The need to increase capital into the supply chain more quickly is being caused by several factors:
1) Business practices with respect to the global supply chain have resulted in organizations demanding a comprehensive and integrated approach to physical and financial supply chain challenges. These challenges include a.) Buyers are looking to optimize their balance sheet by delaying inventory ownership. b.) Suppliers are looking to acquire funds earlier in the supply chain at complimentary rates, given buyers’ wish to delay inventory ownership. c.) middle-market companies are looking to monetize non-US domiciled inventory to increase liquidity. d.) There is wide interest in integrated supply chain finance solutions.
2.) Globalization of the United States and Western Europe’s manufacturing bases has resulted in fewer domestic assets that can be utilized to generate working capital.
3.) The small and medium suppliers to US and European businesses are usually located in countries where the capital markets are not fully developed. The lack of efficient and cost-effective capital while increase the production cost significantly or the suppliers may go out of business.
4.) Letters of credit, a traditional method of obtaining capital for suppliers in less developed countries are declining as large buyers are forcing suppliers to move to open account.
5.) There is a need to ensure stability of capital as supply chains get larger. Another Asian financial crisis (such as the one in 1997) would severely disturb US buyers’ supply chains by making capital unavailable to their suppliers.
