Shoring Up Supply Chains

Financing innovations aim to bolster suppliers through good times and bad.

The prospect of economic recovery is bringing innovation and growth to programs that help supply chains maintain critical links by supplying flexible enough liquidity to weather contractions and meet the increased demand that could come with an expansion.

Such innovation is filling in cracks where assets traditionally have been denied financing. UPS Capital is a niche player that saw an opportunity to move into supply chain finance (SCF). The subsidiary of Atlanta-based United Parcel Service is leveraging its possession of goods in transit and information about those goods into a program that will advance cash for goods being shipped via UPS, generally from foreign suppliers to U.S. buyers using ocean freight. The company has a similar program for inventory held by U.S. companies in foreign countries.

Not every company sees an advantage to involving banks as profit-making middlemen. "We looked at several proposals from banks but it turns out that the discounts we get from paying our suppliers earlier made more sense for both parties since we have the liquidity anyway," says Robert Yenko, Intel's assistant treasurer.

Necessity is still the mother of invention. Supply chain finance thrives in chains where suppliers are in dire need of cash and buyers are eager to extend terms. The incentive to employ supply chain financing is strongest when the suppliers are capital-intensive businesses with a lot of working capital tied up in raw materials and inventory, says Kurt Albertson, procurement advisory practice leader at the Hackett Group.

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