Supply Chain Finance Gets Faster, Cheaper with Technology Like Blockchain, IoT
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Supply chain finance (SCF) has become increasingly common over the last decade, building off advances in technology in industrial monitoring and information sharing brought about by the proliferation of IoT and blockchain technology.

SCF allows buyers and suppliers to use a trusted third party, typically the buyer’s banking or other financial institution, to access capital that would otherwise be locked in their supply chain while goods are being delivered or throughout other transactions.

The nature of an immutable, shared blockchain has major implications for supply chain finance, as reported by Christiaan de Goeij and Michiel Steeman at The Payers. Blockchain systems allow significantly increased settlement speeds at lower costs by providing a single source of truth regarding pivotal points in the supply chain, like creditworthiness, supplier inventory levels, purchase order receipt and approval, invoice receipt and approval, and more. IoT proliferation throughout the supply chain will help recognize and automate tasks related to shipment, delivery and quality control. Identity verifications and Do Not Sell lists that often require multiple independent verifications are also ideal targets for immutable, shared records well-suited for blockchain.

As adoption of new technologies grow, supply chain finance will become more available to smaller and more diverse suppliers. Robert Murphy of Forbes notes that cloud-based technology has allowed buyers with limited means to more easily set up SCF systems that provide streamlined on-boarding for multiple suppliers and analytics to help optimize negotiated pricing agreements and other favorable terms. The next step, as smart contracts and other tools for automation and financial transactions on the blockchain become more robust, will be allowing funding from alternative sources like credit unions and individuals to programatically pool their funds and offer many SCF services currently only available through banks. This will further reduce the overhead and administrative costs and inject millions of dollars into the SCF ecosystem while making it easier than ever for small suppliers to accelerate cash flows and grow their business. As IoT tracking for delivery an inventory become ubiquitous, even faster transactions and payments become possible between buyers and suppliers with strong relationships, like purchase order prepayment and automated refunds for damaged goods or delayed delivery.

As technology to facilitate supply chain finance proliferates at all levels, marginal gains become increasingly important, as outlined by Karan Lai of the Hackett Group. He notes the vital importance of efficiency in booking and approving invoices and understanding the intricacies of a business’ global supply chain to account for variances in foreign currency transactions and potential delays or errors in invoice processing at weak points that have the potential to cascade up the supply chain.

Obtaining favorable payment terms is another crucial activity in optimizing returns from supply chain finance for buyers — since suppliers are using buyer’s credit instead of their own, terms beyond a traditional NET 30 agreement are well justified, and as blockchain technology increasingly commoditizes funding sources, negotiation that includes the third-party payer will become more common and favorable as well.

(Excerpt) Read more Here | 2019-02-06 12:00:00

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