Global Finance pinpoints the leaders in the increasingly innovative, creative and commercially important field of supply chain finance.
The physical transportation of goods between buyers and suppliers may be centuries old, but in recent years it has taken on a new dimension as supply chain financing (SCF) has evolved. At the same time, global supply chains have branched out into new territories, placing additional strains on the financing component of the supply chain. Typically, large buyers want to extend days payable outstanding (DPO) and suppliers, who increasingly are smaller to medium-size companies thousands of miles away, want to get paid on invoice maturity date or earlier.
A wide range of both bank and non-bank financing providers offer supply chain financing solutions that typically leverage the buyer’s credit standing and approved payables to pay the supplier earlier. Recent research published by working capital solutions specialist Demica found that 90% of major international banks offer supply chain financing solutions. There is also growing corporate demand, with Demica‘s research indicating a 65% increase in live SCF programs in Europe within the past 12 months.
According to the Aberdeen Group, leaders in the SCF space enjoy substantial improvements in business metrics such as DPO and DSO (days sales outstanding), as well as lower unit costs. In recognition of the growing significance of supply chain financing, we identify the Best Supply Chain Finance Providers for 2008 across seven global and eight regional categories. A variety of subjective and objective criteria were used for choosing the winners. Factors considered included market share and global coverage, product innovation, customer service, technology, execution skills and client-specific implementations.
While supply chain financing is an emerging discipline, it is a highly competitive space dominated by a mix of traditional trade finance banks, specialist non-bank financial providers and logistics companies that have added a financing component. It is arguably one of the most exciting and innovative areas, combining aspects of cash management, trade financing and the latest web-based technologies for trade document management and visibility into purchase orders and invoices.
BEST GLOBAL SUPPLY CHAIN FINANCE BANK — HSBC
While an increasing number of banks provide supply chain financing solutions, to be a truly global provider requires not only an expansive global footprint but also regional expertise and local know-how. HSBC Trade and Supply Chain has these capabilities across 62 countries and significant market penetration in the SME segment, which often feels the pinch of large buyers extending DPO. It was one of the first banks to realize the significance of extending working capital benefits to the supply chain and invested in integrating its trade and cash management businesses to provide a more holistic offering. It provides a wide range of financing solutions encompassing open account trading, letters of credit and pre-shipment financing. Buyer/supplier collaboration is facilitated by its investment in online platforms that facilitate electronic document exchange and paperless trade.
BEST GLOBAL SUPPLY CHAIN FINANCE PROVIDER (NON-BANK) — Orbian
The non-bank space for supply chain financing solutions is becoming increasingly competitive, with the likes of IBM, GE and even logistics companies such as UPS providing financing options. Orbian, however, has been providing electronic payables services since the late 1990s. It started as a joint venture between enterprise application software provider SAP and Citibank but was later spun out as a separate company. Building on its integration with enterprise resource planning (ERP) systems, Orbian provides suppliers with notification of the buyer’s invoice and payment approval, the timing and amount of payment, and complete remittance information. It gives suppliers access to the entire value of the receivable. In recent years it has also secured strategic partnerships with the likes of spend management provider Ariba, which has one of the largest supplier networks, and Mellon Financial Corporation’s accounts payable outsourcing business, SourceNet Solutions.
BEST SUPPLIER SUPPORT & ENROLLMENT — Ariba
With more than 160,000 “e-enabled” suppliers across 115 countries on its supplier network, Ariba has strong buy-in from suppliers, which is crucial to the success of any supply chain financing solution. It also has a strong supplier enrollment program in place to support the continued growth of its network. Ariba provides different support options from high-touch to low-tier for enrolling suppliers of all sizes and makes their transition from paper to electronic invoices easier with a conversion service. At the lower tier it has a self-help and quick-enablement feature, which enables buyers to reach suppliers with minimal effort.
BEST PAYABLES SUPPLIER FINANCING SOLUTION — Orbian
Supply chain financing solutions enable buyers to extend early payment to suppliers based on approved payables or invoices and often leverage the credit standing of the buyer to provide suppliers with more favorable payment terms. By integrating with buyers’ ERP systems, Orbian enables buyers to transmit approved payables to their supply chain. Based on the approved payables, financing is made available to pay the supplier earlier. Orbian’s broad array of financing options includes access to the capital markets, which enables it to sell the payable debt to investors such as hedge funds. This means it can provide more funding than what may be available from a single financial institution. Orbian has processed more than $22 billion in transactions for companies in the automotive, retail, aerospace and manufacturing sectors.
BEST PRE-SHIPMENT FINANCING SOLUTION — HSBC
Pre-shipment financing is often based on an approved purchase order or the availability of vendor performance data. HSBC implemented a pre-shipment financing facility for a joint venture involved in mining and coal production. Financing was required to meet the needs of shareholders in the venture and for further development of the mine. According to HSBC, the shareholders in the joint venture wanted to limit their exposure through “non-recourse financing” that was repaid through cash flow from the venture. However, the mine had been in production for only six months. HSBC devised an innovative pre-shipment financing structure based on domestic and international “off-take” contracts with the venture’s shareholders. The off-take contracts ensured a base cash flow from the mine, which was sufficient enough to cover facility repayments. HSBC assumed the performance risk of the mine but mitigated the risk using reports from independent experts and models of the mine’s production probabilities and outcomes.
BEST CUSTOMER IMPLEMENTATION OF SUPPLY CHAIN FINANCING SOLUTION —
According to some estimates, suppliers to the automotive industry can find themselves waiting more than 90 days for payment. Recognizing the impact that extending DPO can have on suppliers, Volvo worked with US-based PrimeRevenue to develop a solution that would enable its suppliers to get paid earlier at better rates of financing based on Volvo’s credit rating. Fourteen divisions of the Volvo Group deployed PrimeRevenue’s SCF Platform to suppliers in Europe and the United States. Approved invoices and “sum-certain, date-certain future cash flows” from Volvo are posted to the SCF Platform, where suppliers can view them online. Using the platform, suppliers can “massively or selectively sell” their Volvo receivables to banking partner Nordea and receive payment well in advance of maturity date. According to Olivier Bayzelon, managing director, Volvo Supplier Financial Solutions, the system “eliminates problems tied to long payment terms traditional in the automotive industry and strengthens the financial viability of suppliers to obtain Volvo payments at a time they choose.”
BEST WEB-BASED SUPPLY CHAIN FINANCING SOLUTION — PrimeRevenue
The success of any supply chain financing solution hinges on its ability to easily interact with suppliers. PrimeRevenue’s SCF Platform leverages the best the Internet has to offer by enabling suppliers to gain greater visibility into a buyer’s approved payables, as well as enabling them to sell receivables using an online dashboard whenever they require working capital. PrimeRevenue’s web-based ASP model also facilitates rapid adoption. Another key differentiator is that PrimeRevenue’s SCF Platform is bank-independent. It partners with multiple financial institutions, and buyers can leverage more than one source of funding.
REGIONAL WINNERS
NORTH AMERICA — Citi
Citi is the hands down leader in supply chain finance investment. It has introduced “trade service professionals,” trained specifically to handle clients’ needs in trade finance, and created the Citi Trade University, a web-based seminar program on new industry developments that is offered to clients. In addition, the group is known for its white-label solutions on offer to other financial institutions in the region, including CitiDirect for Trade. While Citi continues to lead the pack in investment and reach, JPMorgan is nipping at the leader’s heels with its end-to-end supply chain finance solutions and value-added services, such as an internal consultant team to help clients tailor solutions to their needs.
WESTERN EUROPE — ABN AMRO/RBS
With both the technology and knowledge base to support the diverse needs of its clients, ABN AMRO/RBS is undoubtedly the leading supply chain finance bank in Western Europe. MaxTrad, the bank’s supply chain portal, provides invoice, order and payment tracking for both buyers and suppliers. With the combined resources of ABN AMRO and the RBS-led buyout group, the bank developed an even greater presence across Western Europe. It is on course to become one of the top banks for trade finance in terms of revenue, size of business and global reach.
NORDIC REGION — SEB
SEB’s supply chain financing system was built in-house and thus offers clients on the supply- and buy-side ease of assimilation with other bank systems that is a clear highlight. The solution was built with much input from clients and the bank’s cash management group. As a result, the flexibility of and integration between the bank’s supply chain offerings and its cash management operations give clients a truly unique opportunity to meld together a completely end-to-end straight-through processing (STP) solution. The bank relaunched its supply chain web portal in 2006 to provide buyers and suppliers with real-time information and the ability to interactively manage invoices.
CENTRAL & EASTERN EUROPE — UniCredit
UniCredit has long focused on gaining ground in Central and Eastern Europe. With the purchase of HypoVereinsbank in October 2004, the bank cemented its position as the largest bank in Italy and also dramatically increased its CEE presence and capabilities. UniCredit also focuses on bringing together supply chain and cash management offerings, which is a boon to corporate treasuries in the region looking for a unified solution. The bank now stands out as a best-in-class full-service solution provider for CEE clients.
ASIA — Standard Chartered
Standard Chartered has a highly integrated working capital management solution built in-house. Through a single interface, Straight2Bank brings together products across cash, trade, global markets and securities services, initiation and reporting. On strictly the trade finance side, the bank also makes use of Trade Document Manager, a solution to manage connections between Straight2Bank, suppliers and buyers across the supply chain. Standard Chartered’s offerings deliver on the promise of end-to-end working capital management. The bank stands out not just for its best-of-breed services and technology solutions but also for its in-house support. The bank’s supply chain finance staff is made up of experts in their field.
LATIN AMERICA — Banco Santander
Banco Santander is the leader in trade and supply chain finance solutions for Latin America. In addition, the bank has worked hard to grow its global presence and connectivity and now supports supply chain financing not just in its home region but also across the global operations of its clients—providing trade finance solutions, such as open account and discounted payments to suppliers, wherever they operate. Banco Santander is also a lead participant in SWIFT’s Trade Services Utility to create a common infrastructure for data matching and workflow.
MIDDLE EAST — HSBC
The region may still be focused on simple trade finance solutions, such as letters of credit, guarantees and promissory notes, but corporates are beginning to examine some of the more sophisticated solutions on offer for supply chain financing. HSBC handles the increasingly sophisticated trade finance needs of clients in the Middle East, with a broad base and growing market share, and is a leader in offering shariah-compliant trade finance solutions through its subsidiary HSBC Amanah. Islamic trade finance products are of growing interest to financial institutions in the Middle East and across Africa and Asia.
AFRICA — Citi
Given Citi’s local footprint across the African continent, and with products such as Citi’s Credit Insured Accounts Receivable (CIAR) and electronic open account trade processes, there are no banks as yet that can touch the global powerhouse in providing supply chain financing solutions for both local clients and those global clients with a presence in Africa. The group also introduced its Global Standby Advisory Unit (GSAU) last year—a group of trade advisers on-call to manage cross-border standby letters of credit. This is an advantage in particular for clients handling their supply chains across the very disparate regulatory environments in this region.
Anita Hawser & Denise Bedell
