Successful Premiere of the Supply Chain Finance Hub: Coping with Financial Distress Caused by the Corona Crisis in Global Supply Chains
The crisis due to the Coronavirus continues to keep the world on its heels. It still has an unprecedentedly negative impact on the economy and threatens the survival of many firms – among them: many suppliers. The crisis has shown how fragile the supply chain sometimes is: One stakeholder’s failure can break through an entire supply chain and, in the worst case, put production on hold. Therefore, many managers prefer to act now rather than wait for the actions of politicians. But how? What are the strategies for dealing with this crisis and how can companies act to support their suppliers? These are the questions Prof. Dr. David Wuttke, Professor for Supply Chain Management at the TUM Campus Heilbronn, and his Doctoral Student, Sairam Sriraman discussed at the premiere of the Supply Chain Finance Hub together with seven industry experts and more than 100 participants on Monday, November 16th.
Key focus of the first Supply Chain Finance Hub: How can companies deal with financial bottlenecks and especially, with insolvency risks on the part of their suppliers? Various levels were discussed, including Siemens’ and PUMA’s current approach to strengthening their suppliers, and the extent to which certain government measures are sufficiently helping. In addition, the discussion focused on pro-active risk management in supply chains and the associated measures that companies can take to prepare for a crisis.
7 experts, 7 questions, 7 answers – a variety of topics and points of view highly appreciated by the participants. “Everyone was able to gain different takeaways based on their individual profiles. While some participants working in startups were able to gain managerial insights on how to deal with the crisis from our expert panel, international participants learned the German way of coping with financial distress in supply chains.”, says Sairam Sriraman, “Overall, participants appreciated the diversity of expertise in the panel, allowing them to look at certain problems from various perspectives.” Each of the invited industry experts gave a short presentation on a specific issue of particular concern to the economy and its companies in times of the pandemic, providing novel and fresh thoughts for the audience. A joint panel combined the findings of theory and practice during which the audience was able to engage directly with the panel through live questions. Planned networking opportunities were well received: Participants stayed on after the end of the discussion to exchange further ideas and learnings with one another.
The exchange among experts, scientists and practitioners led to valuable insights. The top insights gained during the SCF Hub:
- During the Corona crisis, companies moved closer together with their suppliers and were often prepared to make concessions. Banks sometimes waived further fees and extended loans. On the other hand, companies are now paying more and more attention to their rights and the willingness to support is declining: those who have claims are increasingly enforcing them.
- The way in which Supply Chain Finance has been used and introduced over the past ten years must change. The focus must shift: from company-centered goals (improvement of working capital) to supply chain-wide goals (supply chain resilience). Small businesses must be increasingly taken into account and security must prevail over efficiency. Nevertheless, internal targets will still be necessary to encourage large customers to use supply chain finance.
- Information and data will become increasingly important: Companies can only help suppliers effectively if they disclose all relevant data. However, shared data cannot be taken back or prove to be to the disadvantage of suppliers later on. It is not only a question of whether banks or buyers support suppliers, but also whether suppliers are willing to share the necessary data transparently.
- Supply Chain Finance is not only a tool for the crisis, above all, it can put companies in an advantageous position in the long term. Those who have enough working capital through Supply Chain Finance will be able to react and seize opportunities. In the same way, companies that have integrated data systems and thus direct access to relevant information are now at an advantage.
- Purchase-Order Finance could be an effective instrument to finance the supply chain in an effective and more profound way. Here, companies are at the beginning and tend to use it on a case-by-case basis, while company-wide programs are still pending. There are some relevant, open questions: How can technology help companies in sharing data? When data is shared, who is responsible for its accuracy? How can large programs be implemented efficiently, and what resources are needed? How can internal stakeholders be convinced?
In conclusion, Prof. Wuttke and Sairam Sriraman take away the following from the discussion and exchange with experts and the audience: “Each approach to support financially distressed suppliers carries risks – for buying firms and banks, but also for suppliers. A crucial question will be not only whether buying firms are willing to support their suppliers – but also whether suppliers are willing to open up their books if required. Further we have gained knowledge on how leading companies value financial methods and measure risk potential differently, what challenges they think they will face in implementing certain financial methods that might look promising from an academic perspective, and which legal constraints prevent them from doing so.”
Overall, the feedback on both sides was very positive: “We are absolutely happy with how this event went, we are impressed by the large number of participants, and very thankful to all who helped us in setting this up. There are some lessons learned, but overall we are extremely positive looking forward. Conducting this event online allowed more participants from across time zones to join the event. Nevertheless, we would like to work on a hybrid format to strengthen the dynamics of the panel and allow for even more interactivity”, says Prof. Wuttke. A follow-up event is already in the planning: “Participants emphasized the need for a format like this to address certain challenges at the right time. We are already in the planning for a follow-up event in 2021, in which we would like to address Supply Chain Finance and Sustainability.”
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