Segmentation strategy indispensable in supply chain finance

'Always choose a type of supply chain finance that suits your business and your customers. In doing so, aim to strike the right balance and don’t be obsessed by one solution.' This is one of the conclusions reached in the study by Michiel Steeman, who will receive his doctorate today from Nyenrode Business University. In his dissertation, Steeman examines this type of financing from three perspectives. His findings lay the foundation for forms of collaboration between businesses in the supply chain with respect to both goods and money flows.

Benefits

Supply chain finance (SCF) is the collective term for various types of financing processes between businesses in the supply chain. It is a common way to strengthen the financial position of all businesses in the supply chain and spread financial risks. The use of SCF programs saw a tremendous worldwide increase in the last decade, particularly among large companies. However, little scientific research has been done on the topic thus far. In identifying the benefits and challenges of supply chain finance, Steeman’s research will help large firms as they decide on a specific SCF solution.

Foundation of circular economy

Steeman sees an increasingly important role for supply chain finance in the future: 'It forms an essential pillar in the circular economy where ownership structures are changing, money flows will start to take a different course and goods must re-enter the production process.' He also sees an interesting development for logistics service providers. 'They are going to play a more and more crucial role in the chain. Not because they provide the money, like a bank, but because they possess the information that makes a financial transaction possible. After all, they know exactly where goods are located. This will allow them to take on the responsibility of processing transactions as well. At that point they will be doing more than just moving goods from point A to point B, and will therefore have a new, specific role.'

Three perspectives

How can a company achieve cost optimization? What needs to be taken into account? In the first part of his study, Steeman considers the supplier perspective. 'Due to a lack of knowledge, suppliers are often unaware of the extent to which they might benefit from supply chain finance,' Steeman says.

In the second part of his study, Steeman examines how multinationals deal with supply chain finance solutions. He shows that it is important for large firms to differentiate between solutions as well as suppliers. In short: 'Choose solutions that suit your supplier and the partnership you have.'

Finally, Steeman studied the application of SCF solutions that affect not only direct suppliers, but also the suppliers of suppliers. When is it best for large buyers to choose these types of solutions? 'Choosing the best possible solution depends on factors such as suppliers’ degree of creditworthiness,' Steeman explains.