Supply chain finance optimizes working capital and stabilizes trade. The 5th Supply Chain Finance Hub of the Technical University of Munich at the TUM Campus Heilbronn featured an international panel discussing supply chain finance of the future. Blockchain and AI hold the promise of leaps in innovation.
Supply chain finance programs have been around for 15 years. SCF stabilizes trade relations, improves the liquidity of companies and optimizes their working capital. The market offers a wide range of programs. At the same time, innovative technologies such as blockchain and AI promise new approaches. "Supply Chain Finance: Balancing Exploration and Exploitation - Towards an Established Standard?" was therefore the title of the 5th Supply Chain Finance Hub of the Technical University of Munich (TUM), TUM Campus Heilbronn. The event with an international focus, chaired by Prof. Dr. David Wuttke, Professor of Supply Chain Management, took place as a hybrid event for the first time this year. Experts and participants from many different countries joined the panel discussion in Heilbronn.
Increasing importance of supply chain finance
Supply chain finance ensures a steady cash flow. Suppliers are promptly paid through third-party financing and purchasing companies are not required to settle receivables directly. This is a particular advantage when demand fluctuates. "The importance of supply chain finance has increased once again in the face of market volatility," says Prof. David Wuttke in connection with the launch of the SCF Hub at TUM Campus Heilbronn. Payment targets are always the subject of negotiations in price talks: "Supply Chain Finance solves this trade-off by harmonizing goods and payment targets at an attractive interest rate," explains Tom Dunn, CEO of London-based SCF pioneer Orbian, outlining the benefits of the instrument.
The important supply partners first
Despite this, not all suppliers make use of financing. And not enough companies are even offering the option. "There's a lot of room for progress on both sides," explains Prof. Dr. David Wuttke. Siemens is a pioneer in supply chain financing. The Group has been working with supply chain finance programs since 2009. "We have covered around 15 percent of our procurement volume through supply chain finance to date," says Friedemann Kirchhof, Head of Supply Chain Finance at Siemens Bank, commenting on the scope of the program, which primarily involves strategic suppliers at Siemens. "It's crucial that the important partners are on board. We have achieved this goal," emphasizes the SCF expert. Siemens wants to design SCF programs for digital twins in the future. "We are in need of innovations. The value chains are undergoing change. Machines communicate with machines. Financing must adapt to this," is how Kirchhof explains the move.
Low entry threshold important for SMEs
Marketplaces for supply chain finance serve as an effective platform for collaboration with C-suppliers and SMEs. These marketplaces allow suppliers to provide interim financing not only for receivables from individual customers, who initiated the SCF program, but also from other business partners. "Marketplaces have the potential to significantly increase the attractiveness of SCF for suppliers," says Lena Stelzner from CRX Markets. So the opportunities and platforms are there, it's just a matter of utilizing them. Stelzner anticipates a more integrated approach to long-tail spend in the future, referring to expenditures that companies make not with their strategic partners, but with a wide array of other suppliers. AI-curated supplier onboarding could facilitate the acceptance of SCF programs, suggests the supply chain finance expert. She views SCF marketplaces as a potential avenue to diversify the financing of SMEs.
Deep-tier finance via blockchain
Supply chain finance has so far generally been limited to purchasing companies and their direct supply partners (tier 1). Integrating other stages of the value chain into supply chain finance is seen as complex and not very practical. Blockchains may be able to solve this problem and provide interim financing for the flow of money along the entire supply chain (so-called deep-tier financing): "A blockchain can link the receivables of all supply chain stages without requiring the onboarding of subcontractors. The identity of the contractual partners can be unequivocally verified using the technology," explains Srinivasan Sriram, CEO of SCF start-up Skuchain. In this case, the blockchain converts the receivables into digital assets and offers third parties the opportunity to participate in the financing of the assets and the associated liabilities, explains the blockchain specialist at the SCF Hub, who is based in San Francisco. All transactions can be traced back to the origin of the supply chain, eliminating fraud scenarios.
Clarifying legal risks
The development of new technologies for supply chain financing does, however, harbor legal risks. Dr. Claudia Milbradt, partner at commercial law firm Clifford Chance, draws attention to this: "Also companies that develop new standards must protect their IP," she explains. Claiming the intellectual property and determining the protection of IP on its own, is an essential step that FinTechs and start-ups sometimes overlook. The IP specialist cautions that the use of generative language models must also be carefully analyzed in terms of protecting the imported data and potential copyright infringement adapting the applications.
Companies are using AI to forecast their future financing requirements, among other things, so that they can adjust their credit lines accordingly. Banks might be able to use machine learning for an initial risk assessment when issuing loans, says working capital specialist Dirk Neuendorf from Unicredit. "AI can be a game changer when it comes to offering customers more bespoke services, as it boosts productivity and efficiency in the workplace and frees up resources," he explains.
Transparency versus black box
The approaches taken by AI and blockchain technologies are completely different. "The transparency of a blockchain stands in contrast to the black box of an AI, which draws its powerful deductions from precisely this," says Prof. Dr. David Wuttke, comparing the concepts. Even if both blockchain and AI are not yet being used directly in supply chain finance, companies ought to act now and use SCF for stabilizing their business relationships: "There's still a lot of potential for supply chain finance in practice. This is why it's worth applying the established standards consistently to begin with," explains Wuttke.
Supply chain finance programs have been around for 15 years. SCF stabilizes trade relations, improves the liquidity of companies and optimizes their working capital. The market offers a wide range of programs. At the same time, innovative technologies such as blockchain and AI promise new approaches. "Supply Chain Finance: Balancing Exploration and Exploitation - Towards an Established Standard?" was therefore the title of the 5th Supply Chain Finance Hub of the Technical University of Munich (TUM), TUM Campus Heilbronn. The event with an international focus, chaired by Prof. Dr. David Wuttke, Professor of Supply Chain Management, took place as a hybrid event for the first time this year. Experts and participants from many different countries joined the panel discussion in Heilbronn.
Increasing importance of supply chain finance
Supply chain finance ensures a steady cash flow. Suppliers are promptly paid through third-party financing and purchasing companies are not required to settle receivables directly. This is a particular advantage when demand fluctuates. "The importance of supply chain finance has increased once again in the face of market volatility," says Prof. David Wuttke in connection with the launch of the SCF Hub at TUM Campus Heilbronn. Payment targets are always the subject of negotiations in price talks: "Supply Chain Finance solves this trade-off by harmonizing goods and payment targets at an attractive interest rate," explains Tom Dunn, CEO of London-based SCF pioneer Orbian, outlining the benefits of the instrument.
The important supply partners first
Despite this, not all suppliers make use of financing. And not enough companies are even offering the option. "There's a lot of room for progress on both sides," explains Prof. Dr. David Wuttke. Siemens is a pioneer in supply chain financing. The Group has been working with supply chain finance programs since 2009. "We have covered around 15 percent of our procurement volume through supply chain finance to date," says Friedemann Kirchhof, Head of Supply Chain Finance at Siemens Bank, commenting on the scope of the program, which primarily involves strategic suppliers at Siemens. "It's crucial that the important partners are on board. We have achieved this goal," emphasizes the SCF expert. Siemens wants to design SCF programs for digital twins in the future. "We are in need of innovations. The value chains are undergoing change. Machines communicate with machines. Financing must adapt to this," is how Kirchhof explains the move.
Low entry threshold important for SMEs
Marketplaces for supply chain finance serve as an effective platform for collaboration with C-suppliers and SMEs. These marketplaces allow suppliers to provide interim financing not only for receivables from individual customers, who initiated the SCF program, but also from other business partners. "Marketplaces have the potential to significantly increase the attractiveness of SCF for suppliers," says Lena Stelzner from CRX Markets. So the opportunities and platforms are there, it's just a matter of utilizing them. Stelzner anticipates a more integrated approach to long-tail spend in the future, referring to expenditures that companies make not with their strategic partners, but with a wide array of other suppliers. AI-curated supplier onboarding could facilitate the acceptance of SCF programs, suggests the supply chain finance expert. She views SCF marketplaces as a potential avenue to diversify the financing of SMEs.
Deep-tier finance via blockchain
Supply chain finance has so far generally been limited to purchasing companies and their direct supply partners (tier 1). Integrating other stages of the value chain into supply chain finance is seen as complex and not very practical. Blockchains may be able to solve this problem and provide interim financing for the flow of money along the entire supply chain (so-called deep-tier financing): "A blockchain can link the receivables of all supply chain stages without requiring the onboarding of subcontractors. The identity of the contractual partners can be unequivocally verified using the technology," explains Srinivasan Sriram, CEO of SCF start-up Skuchain. In this case, the blockchain converts the receivables into digital assets and offers third parties the opportunity to participate in the financing of the assets and the associated liabilities, explains the blockchain specialist at the SCF Hub, who is based in San Francisco. All transactions can be traced back to the origin of the supply chain, eliminating fraud scenarios.
Clarifying legal risks
The development of new technologies for supply chain financing does, however, harbor legal risks. Dr. Claudia Milbradt, partner at commercial law firm Clifford Chance, draws attention to this: "Also companies that develop new standards must protect their IP," she explains. Claiming the intellectual property and determining the protection of IP on its own, is an essential step that FinTechs and start-ups sometimes overlook. The IP specialist cautions that the use of generative language models must also be carefully analyzed in terms of protecting the imported data and potential copyright infringement adapting the applications.
Companies are using AI to forecast their future financing requirements, among other things, so that they can adjust their credit lines accordingly. Banks might be able to use machine learning for an initial risk assessment when issuing loans, says working capital specialist Dirk Neuendorf from Unicredit. "AI can be a game changer when it comes to offering customers more bespoke services, as it boosts productivity and efficiency in the workplace and frees up resources," he explains.
Transparency versus black box
The approaches taken by AI and blockchain technologies are completely different. "The transparency of a blockchain stands in contrast to the black box of an AI, which draws its powerful deductions from precisely this," says Prof. Dr. David Wuttke, comparing the concepts. Even if both blockchain and AI are not yet being used directly in supply chain finance, companies ought to act now and use SCF for stabilizing their business relationships: "There's still a lot of potential for supply chain finance in practice. This is why it's worth applying the established standards consistently to begin with," explains Wuttke.
