Dissecting Global Supply Chains: Part 2
There's more to supply chains than sourcing for low costs. In the first part of this series, DBS Bank's Vivek Batra shares factors for Asia's predominance as a global supply hub, and the emergence of a new market in 'Tier II cities'.
The rise in importance of working capital
Working capital management has emerged as a critical financial KPI for CFOs across the world. Besides the cost savings from a shorter cash conversion cycle, efficient management of working capital improves professionalism, perception and even the valuation of a company.
Typically, the large suppliers in tier 1 cities are better placed to manage this pressure by tapping on banks to finance relatively high-quality receivables, and also by improving their processes to compress stock levels and amend trade terms to increase payables.
However, smaller suppliers do not always have the wherewithal to absorb longer receivables and the pressure is leading to a shakeout. In view of this, large buyers have started to spread their risks by diversifying their supplier base.
The vendor evaluation process goes beyond quality and price, to the assessment of the financial standing of the suppliers, and those at the bottom of the chain are being weeded out.
Working in tandem with clients
DBS Bank has undertaken significant analyses in order to better understand the levels of trapped cash across our client base and in the key Asian markets. The findings led to the creation of a concerted working capital focus by the bank across every area of institutional banking, including product development, relationship management and training.
We embarked along this journey in tandem with our clients, commercializing specialized capabilities such as supply chain financing, which leverages the strategic relationships between the high volume importers and their key suppliers.
Historically, many large buyers put pressure on suppliers to provide longer terms or to transit to open account trade terms with little support. We are now seeing the same companies develop partnerships with their key suppliers and banks, with the objective of deriving overall value to all parties along the value chain in the form of lower cost of goods sourced.
With a long-term view to help our clients deliver greater efficiencies and enhance productivity gains, DBS Bank provides working capital advisory and complements it with our complete suite of customized products to help our clients improve their cash conversion cycles and access reduced funding costs to cover their receivables flows.
Subscribe to DBS BusinessClass
Stay updated with the latest market trends and industry insights, connect with a network of entrepreneurs, and gain access to exclusive event invitations. Join Asia's fastest growing business community – get your complimentary membership here.