Financial Issues in Supply Chain Management and Supply Chain Finance - Due date August 1, 2014
Special issue call for papers from International Journal of Physical Distribution & Logistics Management
Guest Editors: Mark Johnson (Warwick Business School), Erik Hofmann (University of St. Gallen)
Supply chains account for approximately 75% of the spend of organizations (Trent, 2004). Recently, Tim Cook of Apple has stated that it is critical for them to manage their inventory effectively as it reduces in value by 1 to 2% per week. Effec-tive supply chain management impacts the profitability, liquidity, asset efficiency and risk of an organization (Johnson and Templar, 2011), although these four drivers are interdependent and an increase in one can lead to reductions in the other.
Many companies need to obtain credit to overcome cash flow problems and to facilitate trade and international business. Whereas large corporations are ‘in-vestment grade’ with AAA to A ratings and related credit terms, their direct and indi-rect suppliers face higher financing costs while credit rates often rise as the distance from their large, credit-worthy end buyers increase (Serena, 2013). For non-investment grade suppliers, the Weighted Average Cost of Capital (WACC) often approaches 15% or more – more than 10 times the rate of the end buyer – causing additional costs which affect the whole supply chain (Global Business Intelligence, 2012). In addition, financial institutions and banks which provide trade credit have so far mostly targeted their services on businesses in familiar markets and industries where transactional terms are relatively unambiguous. Currently there is little financial provision of supply chain activities to developing economies in Asia, Africa, and Eastern Europe. Such financial inefficiencies are increasingly becoming a risk to downstream firms. Anecdotally, late payments contributed to about 20% of the recent bankruptcies of European firms.
An approach that addresses these challenges is Supply Chain Finance (SCF). It deals with financial arrangements in supply chains in the form of debt, equity or financial contracts used collaboratively by at least two supply chain partners and frequently facilitated by a “focal” company. The aim of SCF is to improve the overall financial performance of the affiliated firms and to mitigate the overall financial (and operational) risk of disruption in the supply chain. The activity scope of supply chain finance is very broad. It spans from how receivables from customers and inventory are financed within and across the firm; extended payable terms to suppliers which can be used as a source of finance; the impact of effective management in financial terms; to how supply chain practitioners can ‘speak the language of the board’.
SCF requires integration of processes across business functions and organi-zations. SCF aims at both optimizing the financial system between companies, as well as integrating financial processes with buyers, suppliers, and logistics and finan-cial service providers to facilitate the cash conversion cycle, to reduce working capital and to create value for all participating companies. On an organizational level, SCF means a much closer alignment between the internal financial and supply chain tasks and the intensification of external cooperation. The operations and finance/treasury department within organizations have to communicate better and in the same language. On the process level, SCF concerns the integrated view of financial and physical processes within the supply chain, supported by standardized IT and legal systems.
Practical SCF approaches promise to significantly improve access to finance or reduce the need for external financing by unlocking the potential liquidity from within supply chains. Recent estimates show the total economic potential of optimization of SCF could globally free up $1.25bn US (Hofmann and Belin, 2011). But is this really true? It seems astonishing that “triple win” – or sometimes “multiple win” – situations are possible (i.e. the suppliers, the focal buyer and the involved banks benefit from SCF solutions). Can this be? Under which circumstances? And how to overcome barriers of implementation?
Integrating the flows of material, information and finance;
Collaborative cash flow management approaches;
Theoretical explanations for the phenomenon of supply chain finance;
Novel business models for financing inventory, receivables and/or payables across company - and country - borders;
Translating supply chain metrics into financial metrics;
Standardization of SCF approaches, including of financial, rating, and legal as-pects;
Organizational anchoring and institutionalization of SCF functions;
Extending cost-to-serve into multiple channels or segments, and;
Supply chain practitioners speaking the language of the board.
Manuscripts should be prepared per the normal guidelines for International Journal of Physical Distribution & Logistics Management and may be submitted through the journal's online system. Details on how to submit and the author guidelines can be found at:
Paper submissions are due no later than August 1, 2014. Publication is anticipated for the last quarter of 2015.
All submitted papers deemed topically appropriate will undergo the standard International Journal of Physical Distribution & Logistics Management review pro-cess. For questions, please contact any of the Guest Editors below.
Mark Johnson, Associate Professor of Operations Management, Warwick Busi-ness School, United Kingdom, Email: [email protected]