The Value of Supply Chain Finance

Abstract

IntroductionIn traditional study of supply chain management, people mainly consider the decisions from perspective of the operations management, such as, capacity, inventory, ordering level, pricing, etc., and often ignore to consider the impact of financial flow within the supply chain.However, the key function of supply chain management is concerned with the coordination of material flows, information flows, and funds flow (Figure 1).Therefore, the operation decisions of a firm is affected by its own initial capital status.For instance, with the globalization and international competition intensified, many companies have experienced a shortage of capital.The constrained capital of a company could affect the funds flow in the supply chain, and the performance of the entire supply chain as well.In global supply chain, and especially in the post-financial-crisis era, capital constraints are strengthened by common cash-management practices that promote collecting account receivable as quickly as possible while postponing payments to providers and suppliers.This "war for cash" (Milne, 2009) is squeezing small companies harder-these cash-strapped companies find themselves faced with increasing chances of going out of business.Also, the fact that large buyers are forcing suppliers from less developed countries to move to open account has further contributed to the problem of cash flow (UPS Capital, 2007).Consequently, a company with capital constraints who cannot raise funds from bank credit channel or other's channel could hurt its own profit as well as that of the entire supply chain.Fig. 1.Three types of flows in the supply chain www.intechopen.com

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