Upfront: Supply Chain Finance: The Next Cost-Improvement Battleground

Building a reduced-cost, low-risk supply chain from top to bottom will become the new frontier for CFOs, according to new research from Aberdeen Group. The study found that although only 13 percent of companies are actively using supply chain finance (SCF) techniques to improve cash flow and enhance access to capital for their supply chain, more than two-thirds of organizations surveyed are investigating these techniques.

Businesses that fall into the survey's best-in-class category post 13.6 higher days payable outstanding (DPO) than their peers on average and obtain trade financing at a 2.86 percent lower annualized rate. Most important, SCF leaders are creating a lower-cost and a more financially stable end-to-end supply chain, which will result in a strategic advantage.

What is the biggest mistake buyers make in their SCF practices? Extending payment terms for their suppliers, which often have a much higher cost of money, the survey report says. Although this cost-shifting results in better DPO statistics, it leads to a less financially stable and higher-risk supply base. Ultimately, companies that engage in the practice pay a higher cost for goods sold overall than competitors who have mastered more advanced practices.