They, therefore, initiated measures for SCF solutions themselves or changed their demand behavior for SCF solutions. From there, we have incrementally modified them as the data unfolded in terms of who they are and how to classify them into different groups. We begin with an initial list of key actors in the SCF community based on the literature (see Fig. 1). Lastly, the model’s underlying dynamic nature is captured in the interactions across sets of actors, reflecting Cases 4, 5, and 6 showing how influence occurred across different levels of the SCF actors.
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Industry associations enable developing a shared cooperative or market players to exchange information and establish standard practices across the SCF network (Templar et al., 2020). For investors to participate in SCF programs, the receivables and inventories addressed must be made “tradable” and placed on the capital market. To support SCs, central and development banks use partial credit guarantees while letting private lenders originate, fund, and collect on credit.
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The focus on both actors and interactions is required for a thorough analysis of the SCF community (Mollenkopf et al., 2021). In addition to the actors in this community, we identified interactions between the actors. Regulatory and governmental agency actors include governments, regulatory agencies, and credit rating agencies (Case 3). Their profiles are listed in Appendix G. The sample offered diversity in terms of industry, position in the SCF ecosystem, and geography.
Antecedents of Supply Chain Finance Adoption: An Integrated Transaction Cost and Social Capital Perspective
From the perspective of SCF, COVID-19 is not yet over by the time we conclude our data collection in late April 2021. The actors in different groups have synergistically complemented each other. ” The inter-actor group activities are aimed at dealing with the strained liquidity situation. Overall, COVID-19 has led to an increased level of interactions in the SCF ecosystem.
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This brings up the question of whether new companies are entering the market and whether those new business models are changing the ecosystem. We saw evidence that demand for SCF and fintech services increased during the crisis. In other words, buyers were looking to hold on to their cash longer, while suppliers were looking to get paid sooner. For instance, governments provided SCF solutions to buyers and suppliers. The financial SCA found new ways to integrate with buyers and suppliers.
3. SCF ecosystem
With this approach, we were able to ascertain the trends in the rising SCF ecosystem. It served to validate the model and derive implications for future development in SCF ecosystems. RQ3 was addressed by conducting a post-hoc study comprising semi-structured interviews with SCF experts following Villena et al. (2021). We aimed to develop a grounded theoretical model (Glaser and Strauss, 2017) of the SCF ecosystem’s behavior during COVID-19. The answers to RQ1 and RQ2 were addressed through an inductive qualitative case study approach (Eisenhardt, 1989) combined with an adapted version of the Gioia method (Gioia et al., 2012). At the same time, global media outlets reported the crisis, its effects, and its consequences.
- A few selective interviews with potential informants could have helped our data compilation.
- Measures for subsequent waves, a possible new epidemic, or other significant crisis would be necessary to ensure sustainable viability.
- Information technology advancements integrated with the e-commerce supply chain allow participants in the business process to effectively work with large volumes of data and control transactions.
- In order to gather value from SCF solutions, competences on both Finance and Supply Chain Management are essential.
- Beyond a descriptive and conceptual presentation of the SCF ecosystem (Bals, 2019; Templar et al., 2020), our study shows evidence regarding its specifics.
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- Further, deep-tier financing is about funding suppliers beyond tier 1 by leveraging a downstream buyer’s credit rating.
- There were state-backed loans and central banks purchasing assets through their pandemic emergency purchasing program with SCF assets.
- To achieve the objective of the study we have employed the panel data method and have used the linear repression and hierarchical regression techniques.
- We observed how regulatory agencies raised a red flag about selected SCF practices.
Based on data collected from technology and service providers that focus on such issues along global supply networks, the paper identifies and discusses requirements for improved solutions to supply chain finance challenges. There is a wide variety of solutions of Supply Chain Finance offered by Commercial Banks and other financial Institutions to assist businesses in securing risk-free finance, and this study (Song et al., 2018) examined these options. In order to improve the collaborative cash cycle and working capital, SCF aims to facilitate the reduction of financial risks in a supply chain. Supply chain finance (SCF) deals with the management of financial flows throughout the supply chain. It is also advisable that there are multiple ways in which companies can generate liquidity because, like in procurement, single sourcing of capital can lead to disruptions in times of crisis.
EXIM bank of the US provided financial support to buyers and suppliers through their own SCF programs, loan guarantees, and credit insurance. For example, they encouraged banks to adjust their lending practices to the benefit of ailing companies. We saw numerous government attempts to discourage fintechs from helping large and financially strong companies exploiting SME suppliers. They monitored financial actors to ensure they were adequately engaging SCs under the crisis. For example, some LSPs have added fintech services to their traditional portfolio of transportation, handling, and warehousing services during the crisis.
Since providing liquidity is a service, we refer to the SCF ecosystem as a business service ecosystem. Hofmann and Wetzel (2018) identify three types of financial services provided by LSPs in customs clearance services, freight payment services, and inventory financing. By setting up such payable financing practices, buyers support their suppliers. It provides solutions that help buying companies and their suppliers achieve liquidity (Wetzel and Hofmann, 2019). Third, the grounded theoretical model forms a contribution to the rising body of business ecosystems literature whereby we introduce a new business service ecosystem involving a global system of interacting actors. Overall, we explore how the SCF community as a business service ecosystem has intervened to provide organizations with opportunities to improve their liquidity.
For example, central and regional banks have emerged as providers of SCF solutions. When the suppliers were poised to export critical medical supplies to make a profit, those suppliers were warned by EXIM bank that they would be excluded from financing coverage. Nevertheless, it was clear that reviving the core was not merely to help the financial liquidity of the physical SCA. The bridge-financing they offered would facilitate exports through short-term financing until the liquidity returns from private sectors.
The SCF ecosystem then provided funding to companies with liquidity needs. In the course of uncovering the SCF business service ecosystem, the essence of SCF has come to the fore. The desperate need for liquidity and the lack of other solutions fully up to the task of keeping SCs gave rise to the SCF ecosystem. Some major companies had established reverse factoring programs as a way to reduce their reliance on outside funding, and there were a growing number of companies offering services.
They involve a financial service provider (FSP) (i.e., bank or fintech) that help avail early payment on approved invoices with suppliers accepting a small fee on the invoice’s face value. In particular, there is a set of tools and practices focused on payables, inventory, and receivables financing solutions (see Templar et al., 2020 for more detail). Both the Great Depression and now COVID-19 have demonstrated that cash management is the number one priority in a crisis (Cowling et al., 2020; Joseph et al., 2020; Brum and De Rosa, 2021). Second, the study provides insights into the liquidity-driven challenges in SCs and how they cope with extreme situations using SCF practices. From such grey literature, we would be able to observe the course of the crisis and the actors’ behavior in the SCF ecosystem from a safe distance.
One of the innovations observed was suppliers adopting digital forms of communication to reach buyer accounts payable. In some cases, SME suppliers were given preference with shortened payment terms. Financially, suppliers did not have to meet otherwise normal creditworthiness or rating requirements when making award decisions. They notably experienced lowered demand first right after the COVID crisis began in early 2020 but soon faced an increasing demand afterward. Buyers and suppliers increased safety stock, and LSPs were also affected.
LSPs supporting buyers and suppliers also suffered during the early days of the COVID-19 crisis because of the downturn. A case is defined as the collection of actions taken by a specific group of supply chain actors (SCA) as a reaction to the COVID-19 crisis within the bounded context of SCF activities (Miles and Huberman (1994). The data A Contribution to the SCF Literature were added to capture different industries’ perspectives not covered by the traditional newswire services.
Rating agencies also voiced concerns that certain SCF practices might potentially be masking financial stress. In particular, governments tried to discourage fintechs from enabling buyers to ‘bully’ SME suppliers into extending payment terms or offering discounts. The government and monitoring actors voiced concerns over certain SCF practices.
Supply chain management involves coordination and cooperation among several business partners linked through flows of material, money, and information. This article reviews the state-of-the-art of research regarding financial flows in supply chains. As well as practical experiences in this field, a conceptual framework for the effective use of the financial flow management system as well as its principles and foundations should be provided. The financing chain provides the cash flow needed to ensure the doors are kept open, the lights are on, employees are paid, and products are produced and shipped. The flow of financial resources in supply chains is increasingly drawing the centre of attention.
They further developed WC processes and SCF business models to benefit from the increased demand. Further, the physical SCA appear to have recognized that SCF is an effective means to meet the sudden liquidity challenges. For instance, suppliers learned to adopt digital forms of communications to reach the buyer’s accounts payables. With sales plummeting due to lockdowns and credit markets tightening, they grappled with higher financing costs and more stringent borrowing structures.
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