The 5 Benefits Of Sustainable Supply Chain FinanceIn short, the problem is that while many multinationals commit to using suppliers with sustainable social and environmental practices, suppliers in lower supply chains do not. If subordinate suppliers perform poorly or dubiously, multinationals that do business with them could jeopardize their reputations and suffer profound effects, losing customers, being forced to find new suppliers, and disrupting their supply chains. Environmental factors are not the only concern, and issues such as modern slavery and ethical sources fall under the umbrella of sustainable supply chain, but no company wants to risk the potential to undermine its ESG credentials at a time when ESG ratings and ratings have become central to buyer and investor decisions.
Supply chain sustainability refers to company efforts to take into account the environmental and human impacts of their products along the supply chain, from raw material sources to production, storage, delivery and transport links. By integrating sustainability indicators into a supply chain management system (SCM) it monitors a wide range of programs that prioritize renewable energy, recycle product materials, and promote greater social responsibility among suppliers. Instead of relying on its logistics service provider Nike Inc., an American multinational and the largest supplier and maker of sporting goods, footwear and apparel in the world, the company is working to drive efficiency gains and innovation to make its supply chain more sustainable by prioritizing air and ocean cargo logistics in the industry.
Sustainable financing solutions for supply chains use manufacturer-friendly goods and services to provide customers and buyers of these products with opportunities to market their products by using long-term suppliers financing to optimize the balance sheet structure. Sustainable supply chain financing provides access to working capital, close relationships with customers and the ability to quantify sustainability efforts for suppliers. BSR estimates that the sustainability supply finance market will surpass a third of the $660 billion market over time, generating a $6 billion revenue opportunity for financial services providers.
Sustainable supply chain financing provides a unique solution for customers to achieve sustainable procurement goals by ensuring the security of the supply, promoting relationships with suppliers and rewarding and promoting sustainable supply chain behavior at reasonable direct costs for businesses. As discussed in a recent BNP Paribas article on bank financing solutions to support sustainable supply chains (see link below), supply chain financing solutions can be effective in achieving certain CSR objectives by providing companies with proactive tools to encourage their suppliers to adhere to the Supplier Code of Sustainable Behaviour. Businesses can offer suppliers preferential conditions with sustainable supply chain financing (SSCF) that meet environmental and social standards.
In the long term, the integration of sustainable practices into their own activities involves the behaviour of their suppliers. It is clear that buyers can benefit most from their scheme if they are able to get their suppliers on board early. Suppliers benefit from a commitment to sustainability objectives towards buyers, and they can also benefit from financial rebates.
By enabling suppliers to receive early payments they can accelerate cash flow and free up capital to invest in their own sustainability initiatives, including economic, social and environmental. This has led many companies to consider new financing alternatives for suppliers that are consistent with their broader corporate sustainability initiatives, including health and supplier empowerment. It is vital that companies look for new and innovative ways to help in the fight against the sustainability war.
Companies around the world are striving to develop strategies to ensure that they work with socially responsible practices that cover a wide range of areas. There is no doubt that sustainable partnerships increase business revenues. You will also increase your standing with consumers and ensure that your business has a long-term positive impact on the world.
Lack of visibility in supply networks is one of the biggest challenges to the sustainability of the supply chain for companies that work at multiple levels with suppliers. Many buyers have direct relations with their Tier 1 suppliers or contract manufacturers. Multiple suppliers in different parts of the world can help improve continuity of your products and services and avoid costly downtime and reputational damage. In many cases, suppliers have been unable to meet and service products for years, which has implications for other companies.
The complexity of countless supplier relationships and border crossings can hamper the visibility of important operational considerations, such as working conditions in supplier factories thousands of kilometers away. Determine the scope of your project and whether efforts to increase the sustainability of the supply chain must go beyond your top-notch suppliers or whether significant risks are coming down the chain. Evaluate the current supplier performance and determine how you want to monitor sustainability throughout the supply chain.
To improve sustainability of the supply chain when it is needed, you should conduct regular risk assessments of your suppliers and implement control measures to identify and monitor potential threats. Selection of high-performing suppliers to test new sustainability initiatives. This will improve long-term relationships between buyers and suppliers.
Eliminates or improves a surprising number of financial metrics that investors track: cash flow per day, liabilities, outstanding corporate debt, interest and expenses, leverage ratio, interest rate, creditworthiness, and enterprise value. This improves the quality of the data and provides suppliers and financial actors with more accurate information. Supplier-oriented supply chain financing enables buyers to achieve their cash flow and sustainability goals and offer suppliers the same benefits.
It also helps your suppliers to invest in research and development that will benefit your business. Supply chain financing programs that provide suppliers with access to reliable and timely payments are sustainable because they not only increase retail volumes, but also enable the retail supplier base to make strong investments in their own businesses, fueling growth and innovation. This type of program offers both buyers and suppliers a real win-win approach.
