“Assessing SCF’s ROI solely on financial grounds offers a limited view of its capabilities and the potential benefits. The benefits of a well-structured SCF programme extend beyond financial gains.”
Luca Sabbatini, Head: Consulting Services SCF, Addendum
However, calculating the ROI of SCF programmes is intricate, requiring the collaboration of various stakeholders and an in-depth understanding of the process.
This complexity necessitates the expertise of specialised SCF providers like Addendum SCF to help formulate a compelling business case for internal project approval.
Beyond ROI
“Assessing SCF’s ROI solely on financial grounds offers a limited view of its capabilities and the potential benefits,” states Luca Sabbatini Head of Consulting at Addendum. He further explains: “The benefits of a well-structured SCF programme extend beyond financial gains.”
For Procurement, an important aspect is supplier health. SCF is a catalyst for strengthening supplier relationships, which improves the resilience and reliability of a company’s supply chain. For IT , the outcome is reduced complexity. The selected SCF platform streamlines the operating environment.
Cost of Time
Initiating a SCF programme requires zero capital outlay, but the time-investment by the various divisions involved, can be significant. A well-thought-out project plan and change management strategy is required to ensure all deadlines are met.
“Failures in SCF arise from issues related to financial aspects such as the creditworthiness of buyers and other factors such as the mismanagement of key relationships and unclear payment term requests. This means change management strategies are crucial and should form an important part of a SCF programme’s upfront planning.” says Luca.
A testament to the efficacy of rapid SCF programmes implementation is Addendum Consulting’s record-setting rollout for Barloworld Equipment’s SCF programme in 2023, completed in just eight days. This swift execution saved time and unlocked immediate financial benefits, prompting further expansion of the programme.
Financial benefits
Increased Efficiency:
By using SCF, a company can make its capital work more efficiently. The capital saved or generated through optimised payment terms can be used to invest in other areas of the business, potentially generating higher returns than the cost of SCF. This can lead to an improved return on capital employed (ROCE), as the company can generate more earnings from the same amount of capital.
Lower Interest Rates:
SCF programmes often involve financing provided based on the credit rating of the buyer, which is typically better than that of individual suppliers.
This means buyers can access capital at lower interest rates compared to traditional financing options available to their suppliers. By leveraging their creditworthiness in SCF programmes, buyers effectively reduce the cost of capital for their entire supply chain.
Economies of Scale:
Large buyers can negotiate more favourable terms with financial institutions due to the volume of transactions and their credit status. These economies of scale benefit allow them to further reduce the costs associated with financing.
Purchasing Cost Savings:
By offering early payment options through SCF, buyers can negotiate better terms and discounts with their suppliers. Suppliers who need quicker payment are typically willing to offer goods at a reduced price in exchange for faster access to capital . This dynamic solution allows buyers to reduce the cost of goods sold (COGS), thereby improving their margin.
Administrative cost savings:
SCF platforms often come with . These systems automate many of the steps in the procurement-to-payment process, reducing manual effort and minimising errors.
Automation leads to significant administrative cost savings by cutting down on the labour hours required for invoice processing and reconciliation. The adoption of Supply Chain Finance technology can lead to cost savings by increasing efficiency in internal processes.
Operational Benefits
Efficiency:
The integration of SCF solutions revolutionises daily operations, leading to heightened efficiency and effectiveness. The key driver behind these enhancements is digitalisation, which streamlines processes, reduces operational times, and cuts costs, particularly in areas like electronic invoicing.
Enhanced Effectiveness:
The digital transformation facilitated by SCF allows for more accurate and timely exchanges of information among stakeholders in retail finance solutions. This improvement in communication fosters better performance indicators, including service levels and innovation.
Intangible Rewards
Strengthened SCF Partnerships:
SCF champions the cultivation of collaborative relationships between strategic partners, minimising the risk of defaults and nurturing long-term bonds built on transparency, trust, and mutual collaboration. This consolidates the buyer’s supplier base and strengthens the entire supply chain, enhancing collaboration and information sharing at all levels.
Sustainable Supply Chain Practices:
Employing Reverse Factoring within SCF initiatives promotes sustainability by integrating smaller suppliers, enforcing compliance with specific standards, and minimising paper consumption through digital processes. This approach fosters a more sustainable and ethically responsible supply chain management.
Improved Banking Relationships:
Engaging financial institutions in SCF programmes enhances the buyer’s negotiating power. Simultaneously, suppliers benefit from showcasing better financial management, thereby strengthening their relationships with these financial entities.
The strategic incorporation of SCF programmes not only addresses the immediate financial needs of businesses but also lays the groundwork for long-term operational and financial resilience.
