November 11, 2011
Posted by : BobKramer
“A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.” – Mark Twain
Interesting article in today’s Financial Times on insurance companies entering the trade finance market.
“The shift, which would be a first for the trade finance industry as a whole, comes at a time when new regulations arising from “Basel III” threaten to constrain the lending ability of banks, which have traditionally been the only source of trade finance. And with roughly USD 6.5 trillion in assets under management, the US insurance sector could become major players in the trade finance space”
As I mentioned last month, large banks will be going through many changes over the next couple of years, driven by both regulatory and economic considerations. Most will reduce their balance sheets and some will exit the Supply Chain Finance market altogether. Companies considering SCF solutions need to make sure their SCF technology platform can utilize multiple funding sources, both bank and non-bank. Insurance companies represent a source of inexpensive and relatively stable funding for SCF programs, a source that will become increasingly valuable.
October 20, 2011
Posted by : BobKramer
Tags : Advantages of SCF, Carrefour, Caterpillar, CFO World, credit capacity, credit crisis, Demica, Electrolux, Kingfisher, Legal Systems, Lowe’s, Operating Cash Flow, Sainsbury’s, Scania, SCF Evolution, Technology, Volvo, Wal-Mart, Whirlpool
“Birds do it, bees do it, even educated fleas do it.” – Cole Porter
Over on the cash management blog at CFO World, Peter Williams commented on a recent Demica survey which found that fewer bankers believe Supply Chain Finance will experience strong growth next year (75% see strong growth vs 90% in the previous survey). Mr. Williams noted that SCF makes a lot of sense and CFOs are jumping on board. SCF provides on-demand operating cash flow to suppliers in addition to reducing cost, capital and risk throughout the supply chain. As Mr. Winter points out, the advantages of SCF for all parties are clear and the potential benefits far outweigh the minimal set up costs. Supply chain efficiency and cash flow, two areas positively impacted by SCF, remain top corporate concerns.
But the gap between “potential” and “reality” can be cavernous. Has this prevented SCF from “leaving the launch pad”? Mr. Williams points to three SCF challenges. The first two are “getting the technology right” and “overcoming different legal systems”. Some providers of proprietary SCF technology may have technology challenges and most have challenges in one legal jurisdiction or another, however, SCF technology platforms have operated successfully for nearly a decade. At PrimeRevenue, we operate our open, bank independent SCF technology platform in over 30 countries and face competitors in most of them. Mr. Williams then points to perhaps the most important challenge – CFOs are unwilling to commit “their limited financial headroom to these sorts of deals en masse”. This issue of credit capacity is indeed significant. The concern is in large part driven by the credit crisis and the need to preserve liquidity and reduce bank dependency. It has lead large corporates to implement bank independent solutions that provide multiple accretive liquidity sources that do not impact a company’s credit capacity with its relationship banks. This is a natural response of SCF to the credit crisis as SCF evolves to open, bank independent technology and service platforms.
But to get a sense of what’s happening on the ground, let’s look at what companies are actually doing. Just looking at publicly announced SCF initiatives we see leaders in such diverse industries as truck manufacturing (Volvo, Caterpillar, Scania, etc.), appliance manufacturing (Whirlpool, Electrolux) and retail (Wal-Mart, Kingfisher, Lowe’s, Sainsbury’s, Carrefour, etc) implementing SCF. These organizations have global supply chains and SCF wouldn’t be of much use to them if it was a purely domestic opportunity.
New technology and business process adoption takes time, especially in the Global 2000. Hurdles will always pop up. In response, SCF has evolved away from bank proprietary platforms to open, bank independent platforms to meet the challenges surrounding technology, legal jurisdictions, supplier adoption, benefit attainment and credit capacity.
October 13, 2011
Posted by : BobKramer
“Logic, like whiskey, loses its beneficial effect when taken in too large quantities.” – Lord Dunsany
A recent article in Plastics News highlighted one of the major concerns we’ve been hearing from our clients for some time now – suppliers cut so much during the downturn that they will not be in a position to meet the increase in demand that will come with economic recovery. Bob Scocia, vice president of global purchasing for General Motors was quoted as saying “A concern I have is, as you look at the supply base, did we take too much out? Are we equipped for the rebound?”
Suppliers will need to find a way to finance the capacity and working capital increases required as the economy recovers. OEMs and Tier 1 suppliers can do their part by supporting their suppliers with collaborative approaches like Supply Chain Finance.
October 5, 2011
Posted by : BobKramer
“My favorite things in life don’t cost any money. It’s really clear that the most precious resource we all have is time.” – Steve Jobs
As the European debt crisis festers, existential questions are being asked of the large global banks. From a corporate perspective I believe these threats, while real, are somewhat overblown. The governments of Western Europe will not let the big banks fail and nationalization, a real possibility, will most likely have little impact on core banking services provided to corporates. In the US, Dodd-Franks guarantees the big banks won’t fail. So, is there no reason for corporates to be concerned about the services they obtain from the large banks? Yes, there is.
All of the large banks are facing regulatory and economic driven changes (e.g. Basel III, European debt crisis, etc.) and all of them will be re-organizing and getting into or out of multiple lines of business over the next couple of years. Products and services which represent a small percentage of bank revenue will be on the chopping block as banks shuffle the deck and evaluate their product investments and returns on those investments.
September 23, 2011
Posted by : BobKramer
“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” – Winston Churchill
Reuters recently reported that “Airbus is in talks to buy a majority stake in one of its German suppliers that is facing a liquidity squeeze…. This would not be the first time that Airbus has stepped in to help a supplier in a bind. It provided France’s Latecoere industrial and financing support last year”. I expect to see a lot more of this as the economy recovers. Suppliers, particularly in capital intensive industries like automotive and aerospace, cut to the bone to reduce break even points during the recession and simply don’t have the production capacity to meet the coming increase in demand. Further, many suppliers face limited and expensive working capital financing options.
This is the ideal role for Supply Chain Finance – reducing cost, capital and risk in the supply chain by providing inexpensive, on demand, working capital to suppliers to help them grow their businesses. It’s certainly much less costly for the procurement organization than buying suppliers or lending them money to ensure supplies.
