Published on Feb 15, 2016
Supply chain finance (hereafter referred as SCF) examines the corporate supply chain and provides finance to the key external player's therein (suppliers and distributors, collectively referred to as channel partners) for their sales to the corporate and their purchases for the corporate as the case may be.
Supply chain finance (SCF) provides integrated commercial and financial solutions to the supply and distribution channels of a given industry. It gives support to the commercial relationship between banks clients and their suppliers and customers. The aim of SCF is to add value to supply and distribution channels by providing unique solutions that meet the customers' demands .
Indian economy is growing at a very fast space and thus this fact motivates lot of entrepreneurial skills to be developed in the country it also encourages in manifold increase of trade activities. The major concern in this scenario is the availability of the funds and thus banks will play a key role in further building our economy This project aims to do the cost benefit analysis and performance management for the supply chain unit of standard chartered Bank. For determining the cost of the supply chain unit, the overall cost has been divided under four major categories. The four major categories for the costing are identified as following -
2-Cost of funds
The start-up cost includes the cost involved in the activity of the initiation of the deal with the prospective client and the materialization of the deal. Cost of funds is the interest cost paid by a financial institution for the use of money. The third head i.e. the servicing cost involves the cost of maintaining a customer that would include the monitoring of the customers account, handling the queries of the customer etc. The delinquency cost handles the losses due to default and the legal cost.
To see whether the cost put on various activities are giving the desired results or not, for achieving this tail management is done, In this a ratio is determined which would enable the organization to concentrate on the customers, which provide the greater part of the business to the bank and exit the accounts of the customers which are not up to mark. To undertake these analysis parameters are decided and thus the ratio is determined on its basis.
The Supplier and Buyer finance programmes offer a set of eligible anchor customers a chance to arrange alternate financing options for their "Business Partners." The value provided to the parties involved in this product is as follows:
• The programme allows companies to play a large part in the arrangement of cheaper finance for the business partner, enabling the companies to use the programme as a marketing tool to develop stronger relationships and promote loyalty amongst its business partners
• It allows re-negotiation of contract terms with business partners based on the "cheaper" funding arrangement made for them.
• There is an instant conversion of receivables to cash resulting in a positive impact on balance sheet
• Enables increase in sales by making available competitive financing to augment its business partners resources.
• Uses the programme to compete more effectively by running a well managed supply chain
• Potential to ascertain greater efficiencies in cash management and receivables management process.
• Ability to introduce payment discipline within their business partners
FOR BUSINESS PARTNERS
• An opportunity to develop a stronger business partnership with their anchor customer
• A cost effective financing option for purchase/sale of goods, i.e. prospect of benefiting from incentive schemes, thus favoring sales & profitability
Flexibility in programme allowing extension of repayment period, alleviating cash flow burden
The Supplier Finance Programme (SFP) is a bilateral supply chain-financing programme under which SCB offers packaged pre and post-shipment finance facilities to the suppliers of bank existing/target C&IB clients (anchors). This finance is provided for those parts of the suppliers' transactions, which have a direct linkage to the anchor, and is based in large part on the strength of the underlying buyer-supplier relationship.
By packaging these facilities under SFP, the underlying risks of this pre and post-shipment finance are lower that that offered on a standalone basis, as:
• It is strictly supply chain financing, whereby facilities are made available to the supplier only for those specific sales to the recognized anchor, and the corresponding payment is made directly by that anchor to SCB. The main risk, therefore, that bank take on the supplier is performance and not financial, which itself is mitigated by the fact that only established suppliers with a good performance record are permitted.
• SFP is highly transactional in nature. By receiving purchase order/ invoice information from the anchor, SCB is able to advance funds to the supplier and track repayments against individual purchase orders/ invoices. Therefore, should a repayment against an individual purchase order /invoice be overdue, SCB can prevent any further drawdown from taking place until the overdue outstanding has been regularized, and appropriate credit approvals are received.
• The facilities under SFP are well structured, ensuring that both the pre-shipment and post-shipment parts of the trade transaction are captured. Furthermore, the proceeds of the sale being made payable to SCB and not the supplier ensure that the loan is self-liquidating and cannot be diverted for use elsewhere.
Reference : •
1- Fundamentals Of Cost Accounting by DR.S.N Maheswari.
2- Cost & Effect by Kaplan Cooper.
10- Company’s PPG documents