Trends for Resilience: How to Keep Your Supply Chain Stable

“Treasurers are increasingly focusing on working capital management in order to shorten the cash conversion cycle and achieve better returns on invested capital,” says Dirk Fehring, Senior Director Supply Chain Finance at RBI. “Disruptions to supply chains due to political unrest, climate-related events or cyber threats have shown that we need to manage supply chains and the associated risks even better worldwide,” he adds.

In addition, rising interest rates are putting pressure on companies to release liquidity tied up in the supply chain. “Our experts at Raiffeisen Research carry out detailed analyses of the complex interest rate landscape. We expect interest rates in the eurozone to remain volatile over the next 12 months, influenced by a combination of inflation, economic recovery and geopolitical uncertainties,” Sebastian Kupka gives a brief overview. 

The digitalization of business processes is high on companies' agendas. In addition to projects along the classic supply chain, the optimization and digitalization of financial processes along the supply chain are increasingly coming into focus. 

“Information technologies significantly improve communication and collaboration between all parties involved,” says Dirk Fehring. “In addition, digital platforms simplify decision-making processes, and the wealth of digitally available data enables advanced analyses that provide deeper insights for risk management, trend analysis and strategic planning.”

In recent years, working capital financing has also increasingly become the focus of FinTechs, which are entering the market with new product solutions and alternative platform offerings. “The high-end infrastructure of FinTechs often uses advanced technology to offer fast, transparent and convenient solutions. This is why banks – like RBI – are joining forces with FinTechs to develop new and innovative solutions together,” adds Sebastian Kupka. 

“The digitalization of trade and supply chains also involves the transfer of paper-based processes to digital processes – and therefore inevitably also the digitalization of documents,” Dirk Fehring continues. “There are solutions on the market that rely on optical character recognition of delivery documents and enable earlier supplier payments through efficient processes. With the introduction of digital trade documents, we may be at the beginning of a global revolution and new dynamic in trade finance.”

“In the area of supply chain financing, for example, the bill of exchange could possibly experience a renaissance as a payment instrument,” adds Sebastian Kupka.

Receivables financing has been established for centuries and is used worldwide by companies of all sizes. When it comes to financing payables to suppliers, however, products have been developed over the last 25 years primarily for international companies. 

“With new solutions involving payment institutions or post-maturity financing, for example, it is now easier to involve suppliers. This makes the financing of liabilities interesting for medium-sized enterprises who want to optimize their working capital,” says Sebastian Kupka. “Analysis-driven solutions, multi-stage supply chain financing and the consideration of ESG criteria are interesting as well.”

“ESG continues to be a hot topic in supply chain finance,” says Dirk Fehring. Sustainable supply chain finance (SSCF) enables companies to combine established structures with sustainability elements and create financial incentives for suppliers, for example, to implement social and environmental goals. The focus on sustainability in financing strengthens the entire value chain for the benefit of all parties involved.

However, both payables and receivables finance have so far been underrepresented in the ESG sector. “This is due to the fact that entire debtor portfolios and many small suppliers are difficult or impossible to check for ESG criteria. However, European corporates must also prove that their supply chain operates responsibly and sustainably for their ESG report,” says Sebastian Kupka. In this respect, there are many companies that are looking for solutions to better monitor their supply chain.

“SSCFs can be structured in different ways,” explains Dirk Fehring. Up to now, ESG ratings of suppliers have been used as the main criterion for this; an improvement in the underlying rating leads to more favorable financing costs, for example. External ESG ratings or the company's internal ESG scoring for suppliers are used as a basis. 

“However, there is a general trend in the market to move away from external ESG ratings,” says the expert. “We expect a stronger focus on ESG KPIs in the future – both environmental and social KPIs can be placed at the center. In particular, KPIs that create incentives for suppliers to reduce greenhouse gas emissions and corresponding targets have great potential to contribute to achieving the 1.5-degree climate target. As more and more companies are having their emissions reduction targets verified by the Science-Based Target Initiative, which in most cases also covers emissions from the value chain, the pressure on suppliers to set their own targets is increasing.”

1. Digitalization and automation: increased use of technologies to improve transparency and efficiency
   
2. Sustainability: increasing demand for environmentally friendly and ethical supply chains
3. Globalization: expansion of global supply chains requires better financing and risk management strategies
4. Control of the supply chain (in real time): COVID-19, geopolitical unrest and climate-related disruptions have highlighted vulnerabilities in global supply chains and the urgency for more resilient systems.
5. FinTech innovations: New financial technologies offer more flexible and cost-effective financing solutions.
6. Regulatory changes: Tighter regulations, e.g. also in relation to the supply chain, are influencing lending and financing structures.