Then, we have regulatory and governmental agency actors controlling and helping the FSC activities (see Case 5). Most immediately, the financial SCA’ impact what these physical SCA do. Overall, governments actively conducted economic policies, including SCF practices. For instance, regulatory agencies pledged monetary stimuli and set up intermediaries to release liquidity.
Supply Chain Finance
Supply Chain Finance as an A Contribution to the SCF Literature emergent and currently, one of the most viable and plausible financing procedural instruments is not a new conceptual framework. This paper builds on the increasing body of research and practice that suggests trading firm-optimized for supply chain optimized performance reduces overall cost and improves customer value. Furthermore, it appears that suppliers are hesitant to adopt Supply Chain Finance because there is little evidence of the actual cost savings and its benefits. This research has particular relevance in the light of the disruptions that the global credit crunch has brought to global financial systems, and the changes that are likely as responses to these disruptions. This paper explores current models and practice regarding the dynamics of financial flows along global supply networks.
We have also been able to learn how FSPs helped some buyers establish new ways to extend payables. Thus, a new type of phenomenon involving the use of new technologies, such as blockchain, known as “deep-tier financing,” was increasingly gaining traction. The data structure presented in Table 7shows how we arrived at a total of four 2nd-order themes from the 17 1st-order categories. In the fourth case, we took a closer look at the collective activities of fintechs and banks. Thereby, the buyer would take short-term loans to pay their suppliers but gain from their suppliers’ discounts.
- One crucial fact to remember is that all actors are part of the ecosystem.
- However, lowering the water level by the COVID-19 crisis began exposing rocks hidden under the surface.
- We saw numerous government attempts to discourage fintechs from helping large and financially strong companies exploiting SME suppliers.
- The most well-known practices include reverse factoring (Wuttke et al., 2013; Iacono et al., 2015; Liebl et al., 2016) and dynamic discounting (Caniato et al., 2016).
- This is, by far, a brilliant innovative method of leveraging working capital accessibility and the substantial enhancement of credit ratings and values of the various companies using the SCF system to optimize trade efficiency, predictability and ultimately profitability.
- For instance, they would generally use cash from the buyer to conduct dynamic discounting.
3. Case 3: regulatory and governmental agency actors
They then published the maps to the buyers and suppliers across the SC. The U.S. Treasury Department provided direct loans to buyers and suppliers through paycheck protection programs (PPP). Through a stimulus package, central banks supported SCF practices and saved them from collapse. Several banks have run into difficulties and had to adapt their lending practices, for instance, by reprioritizing credit lines. The rating agencies accused SCF of providing a way for companies to conceal financial stress. Overall, regulatory and governmental agency actors were firing on all cylinders to control and help the financial SCA.
- Some governments also promote digitization and automation, encouraging the development of new SCF solutions.
- The increasing number of SCF special issues in operations management journals (i.e., Hofmann and Johnson, 2016; Caniato et al., 2019; Chen et al., 2020; Rogers and Leuschner, 2015) underscores the interest.
- Actors in the physical SC expanded their business field into finance.
- Buyers and suppliers increased safety stock, and LSPs were also affected.
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They also include quasi-governmental regulatory organizations such as central banks. The third level consists of the regulatory and governmental agency actors, including governments, regulatory agencies, and credit rating agencies. As SCF solutions providers, this group created opportunities, as discussed in Case 2.
2. Case 2: financial SCA
Previous studies used the agency theory framework (Eisenhardt, 1989) to reduce SCR and improve OP through SCF management. In addition, (Hofmann & Belin, 2011) claimed that SCF can be seen as a strategy to enhance working capital, that reduces Supply Chain Risk and boosts Organisation Performance of enterprises. In doing so, it becomes apparent that an explicit examination and optimisation of the cost of capital has been missing so far.
During COVID-19, this utilization of SCF as a tool to strengthen suppliers has clearly become visible in its criticality to the firms’ survival and well-being. All in all, the patterns of activities in the SCF ecosystem form the core of the grounded theoretical model and can be expressed with the question “what? We would expect governmental agencies to retain a relevant role in the SCF ecosystem in the coming years as we anticipate continuing major disruptions (Flyvbjerg, 2020).
3. Limitations and future research
Thereby, the SCF community exhibited both business and innovation ecosystems traits in the crisis (Adner, 2006). So, this new purpose of the SC is to utilize the SC to fund the organization, and, using the organization’s financial strength (i.e., lower cost of capital) to help fund suppliers. It is usually not small suppliers that take the lead, but either large buying companies or banks and fintechs. In supply chain finance transactions at the operational level, different actors in the supply chain will take the lead. They then joined in the SCF solutions by providing data and connect their IT systems with those of the service providers.
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Our emergent model consists of three large sections—the locus of interventions, patterns of activities, and interactions across sets of actors. Next, we look across all six data structures presented previously to create a grounded theoretic model (Corley and Gioia, 2004; Gioia et al., 2012; Villena and Gioia, 2018). Regional development banks (i.e., Asian DB) have proactively engaged in the trade of medical and pharmaceutical goods.
Erik Hofmann
During the crisis, even FSPs received support from governmental agencies. While this theoretical contribution is not novel, this research supports the need for ability to generate liquidity. It was as if the COVID-19 crisis unveiled the curtain and the fourth purpose of SCs came to light. Instead, it could be described as a community of actors that were loosely related to each other. Before the pandemic, it was a growing area of finance, but also one that was relatively obscure.
Both fintechs and banks have implemented numerous initiatives during the crisis to strengthen the SC’s liquidity situation. While this company integrated services in its own offering, other companies integrated across their company boundaries. As the COVID-19 crisis drew attention to the payment extension programs at buying companies, the regulatory and governmental agency actors voiced concern about the classification of SCF activities on books. Many of them decided to finance stimulus packages to encourage goods and services to move across SCs.
The supply chain financing ecosystem: Early responses during the COVID-19 crisis
At the core, the SCF community consists of buyers and suppliers, we add LSPs, and call them the physical SCA (Case 1). These cases emerged from our data analyses, with additional actors not demonstrated in our initial Fig. These data structures are then used to create our grounded theoretical model for the SCF ecosystem.
The data were gathered qualitatively via semi-structured interviews. The next step was to begin the data structure building for each of these six cases, following the Gioia method (Langley and Abdallah, 2011; Gioia et al., 2012; Gehman et al., 2018). To each case, we applied the Gioia method to create data structures (Langley and Abdallah, 2011; Gioia et al., 2012; Gehman et al., 2018). The researchers met weekly from June 2020 until February 2021 to discuss and analyze the coded data. The dataset included a collection of social media posts on LinkedIn, trade journal articles, and company press releases.
Newswire services reported the widespread impact of the COVID-19 crisis on organizations and their SCs worldwide. For example, buying companies benefit from the fact that other competitors have already introduced SCF practices with the same suppliers. The SCF ecosystem as an example of a business service ecosystem shows four main characteristics that we draw upon.
For example, the governments’ behavior was not only intended to create confidence in the financial markets. The activities undertaken by governments during the crisis extended further than usual. More broadly, governments intervened in the pandemic to calm financial markets. The first theme addresses the concerns expressed about SCF practices during COVID-19.
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