Supply Chain Finance revisited:

A critical review with future prospects

Georgios L. Vousinas1

Abstract

Supply Chain Finance (SCF) is a relatively recent thinking in Supply Chain

Management (SCM) literature. Major Interest in SCF has steadily increased since the
past decades and especially during the global financial crisis of 2008. However, SCF
places the focus of research on the interconnection among SCM, corporate value and
financial performance, away from the myopic perspective of managing solely the cost
when studying financial aspects of SCM. Despite the crisis-related research interest
and the growing importance of SCF, academic contributions on the subject remain
vague, while scarce research efforts have been identified toward the systematic
documentation of its core concepts and the development of a “general theory” of SCF.
This paper aims to redefine the term SCF by shedding light on theoretical ambiguities,
provide an up-to-date systematic literature review of the SCF concept and identify
research gaps. The goal is to also highlight emerging areas like the “Supply Chain
Financial Bullwhip Effect” and Blockchain Technology.

Keywords: Supply Chain Finance, Financial Performance, Supply Chain Financial

Bullwhip Effect, Blockchain, Crisis

1. Introduction

Supply Chain Finance (SCF) is a scientific discipline at its infancy, which has emerged
in Supply Chain Management (SCM) literature and gained further acknowledgement
and interest by researchers mostly due to the global financial crisis of 2008 and
financial turmoil the crisis entailed (eg Klapper, L.F. and Randall, D., 2011; Wuttke et
al., 2013; Coulibaly et al., 2013). Nevertheless, SCF indicates a justified refocusing of
research in the interconnection and relationships between supply chain management,

1
Georgios L. Vousinas, Doictoral Researcher, National Technical University Athens, School of
Mechanical Engineering, Section of Industrial Management & Operations Research- Greece, e-mail:
vousinas@yahoo.com

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corporate value and financial performance and away from the myopic perspective of
managing solely the cost when studying financial aspects of SCM.

Introducing schemes and instruments of corporate finance to work toward a

more effective SCM, by means of enhancing collaboration among Supply Chain (SC)
partners and financial institutions (eg, better financing terms, new methods of funding
etc.), is an imperative for success. Despite the crisis-enhanced research interest and
the growing importance of SCF, academic contributions and discourse on the subject
remain fragmented and general in nature. At the same time, few research efforts have
systematically documented the core concepts and formative elements of SCF.

This paper aims to redefine the term SCF by shedding light on theoretical
ambiguity, to provide a systematic literature review of the SCF concept by exploring
both theoretical and empirical research contributions, and to identify grey research
areas. The goal is to also highlighting emerging areas like the “Supply Chain Financial
Bullwhip Effect” and technological innovation such as blockchain applications.

2. Supply Chain Finance (SCF)

2.1 The birth of the term Supply Chain Finance

Before considering the concept of SCF, it is essential to understand the broader

concept of SCM and acknowledge the main developments which are shaping the way
that both physical and financial supply chains are managed. SCM is well established
within large organizations as a way of doing business that offers competitive advantage
in terms of reducing the cost of goods and simultaneously improving customer service.
Traditionally SCM was referred to as the functions of logistics, transportation,
purchasing and supplies (eg, Tan et al.,1998: Oliver and Webber,1982). However, the
evolution of SCM has shifted the focus to different aspects of SCM such as the issues
of integration (eg, Pagell, 2004; Frohlich and Westbrook, 2011), risk management (eg,
Ellis et al., 2011; Boone et al., 2007), sustainability (eg, Wieland et al., 2016; Seuring
and Müller, 2008) and optimizing working capital (eg, Preve and Sarria-Allende, 2010;
Shin and Soenem, 1998).

In today’s globalized business environment, which is characterized by high

levels of competition, firms around the world struggle to find ways to cut costs while
maximizing the efficiency of their working capital so as not to stay behind the current
market developments and ensure their viability. The concept of SCF is one of the most
promising tools for financing firms, and has its roots back in the early ‘80s in the

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automobile industry. However, it did not really take off until after the burst of the recent
economic crisis when it became a widely used for businesses of all types and sizes.

More specifically, the most important factors that led to the development of the
SCF are:

 The global financial crisis of 2008. This crisis had its roots in the US subprime
mortgage crisis of 2007, and put the bargaining power of the businesses with
the banks at a disadvantage to acquire the required funds (Das, 2010). The
global financial landscape changed with the failure of several large financial
institutions and subsequent government intervention to prevent imminent
collapse. The lack of trust and uncertainty led to disruptions in the short-term
funding markets and bank credit shocks. These shocks were transmitted from
the financial sector to the real economy, via the existing transmission channels,
further squeezing the available funds (Vousinas, 2013). As a result, the
participants in SC were forced to find new ways of financing their business
objectives.

 The changing level and position of inventory maintained by businesses.

Inventories exist throughout the supply chain and flow as raw materials,
components, semi-finished goods, products in transport or as final products
ready for delivery to the customer. These inventories, however, are a source of
cost for the company, as they tie-up a substantial part of its available working
capital, making it less responsive to the volatility of market demand.
Organizations now want the inventory to be held in the early stages of SC, ie,
in the hands of the supplier.

 Globalization of the economy. There are several issues that characterize

financial transactions on a global scale. These include exchange costs, costs
and delays due to increased bureaucracy, import and export tax and related
issues.

 Rapid technological development. This has a direct impact on consumer

needs, and this is reflected in a shift in consumer preferences towards more
personalized products. This translates into a change in the production process
from traditional economies of scale to a more customized production. In this
direction, the automation of the full procure-to-pay (account-payables) and
order-to-cash (account-receivables) cycles has enabled event-trigger (a
triggering event is a tangible or intangible barrier or occurrence that, once

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 breached or met, causes another event to occur)2 financing services. For
instance, a pre-shipment financing discussion can be triggered by an order
confirmation.

 Regulatory changes. These changes have favored the emergence of SCF over
traditional trade finance solutions. The Basel II Capital Accord requires
minimum duration of one year for loans and a focus on counterparty risk rather
than performance risk, while Basel III rules emphasize on liquidity issues,
leading to a reduction in the credit supply provided by banks (Vousinas, 2015).
By reducing overall counterparty risk and providing a new secured method of
financing, SCF represents a lighter capital strategy than other traditional
instruments.

 Relevant incentive programs. Programs issued by government authorities in

favor of SCF. Most notable of these programs is the US SupplierPay Initiative,
which was launched in 2014, following the success of the corresponding Supply
Chain Finance initiative in the UK3. It is a pledge signed by numerous private
sector companies, with the goal of helping smaller suppliers access working
capital at a much more affordable rate.

2.2 Defining Supply Chain Finance

In the modern globalized economy, which is characterized by high levels of competition

and harsh financial conditions, firms are engaged in an endless fight to cut costs while
struggling to gain access to the funds required in order to achieve their business goals.
The globalization of supply chains, with multinational buyers on one hand and a diverse
group of suppliers in numerous countries on the other, is creating pressure on to unlock
the trapped working capital inside their supply chains. The main task of SCF is to
reduce the capital cost by means of integrated relationships of partners and advanced
financing activities in supply chains.

Supply Chain Finance can be defined as the use of financial instruments,

practices and technologies for optimizing the management of the working capital and
liquidity tied up in supply chain processes for collaborating business partners - the
buyer, the supplier and the financing institution (EBA, 2014).

2
Available from: https://www.investopedia.com/terms/t/triggeringevent.asp, Accessed 15.2.2018.
3
Available from: https://www.sba.gov/about-sba/sba-initiatives/supplierpay-initiative/supplierpay-
case-studies, Accessed 15.2.2018.

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 Figure 1 introduces the SCF “pyramid” in order to offer a brief, simplified view
of the parties involved and to serve as a future research reference:

Figure 1 – The SCF “pyramid”

Source: Author’s design

There exist numerous financial instruments which fall under the scope of SCF,
as seen in Figure 2:

Figure 2 – Varieties of SCF instruments

Source: Adapted from EBA (2014)

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 The most widely used instruments of the SCF, as depicted in the above Figure,
include the following:

 The Funding of Receivable Finance, the main sub-category of which is Reverse

Factoring (as analyzed below).
 Dynamic Discounting (DD) is a technology-enabled solution for companies to
capture and automate discounts to their entire supply chain. DD gives buyers
more flexibility in order to select how and when to pay their suppliers in
exchange for a lower price or discount for the goods and services purchased.
 Inventory Financing is a line of credit or short-term loan made to a company so
it can purchase products for sale4
 Purchase Order Financing refers to a short-term commercial finance option that
provides capital to pay suppliers upfront for verified purchase orders5.

The most common of these tools is Reverse Factoring (RF), which has gained
considerable ground compared to the traditional Factoring method (centered on selling
receivables) and has received major recent interest from both the academic and the
business community (e.g., Iacono et al., 2015; Wuttke et al, 2013).
RF is defined as a financing solution that has been initiated by the ordering
parties to help their suppliers secure financing of receivables at favorable terms
(Lekkakos S.D. and Serrano A., 2016). While there is some confusion between SCF
and RF, because historically RF is the most widely used way of applying the SCF and
the link among them is indisputable, the two concepts are not identical, as made clear
by the above figure.
In Figure 3, the “circuit” of SCF is presented, via the lens of the operation of the
most common SCF instrument ie, Reverse Factoring, so as to provide a simplified
illustration of the basic flows and the parties involved:

4
Available from: https://www.investopedia.com/terms/i/inventory-financing.asp, Accessed 15.2.2018.
5
Available from: https://www.purchaseorderfinancing.com/po-finance/what-is-purchase-order-
financing/. Accessed 15.2.2018.

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 Figure 3 – The “circuit” of SCF

Source: Author’s design

The main focus in the SCF approach is given on taking an inter-company view
of financial flows with customers, suppliers and service providers to better share the
risks and value of financial flows among the supply chain members (Pfohl and Gomm,
2009). As suppliers suffer due to delayed payments which squeeze liquidity and affect
negatively their cash conversion cycle (CCC) 6, they rely on short-term borrowing, at
rates which are higher than those the buyer could attain, in order to be able to have
sufficient working capital for operations. Further, because these additional costs tend
to find their way back to the buyers later in terms of higher pricing or reduced service,
the buyers have the incentive to reduce these costs by helping their major suppliers
get better terms (lower lending rate, discount policies etc.).
In this direction, following the global financial crisis of 2008 and the severe
negative impact on economic conditions, the management of working capital has
become critical due to the prolonged long cash flow cycle time from procurement to
sales. Firms are seeking an appropriate financing method to their own as well as with
their trading partners, but the conflicting goals among buyers and suppliers increases
the complexity to create a mutually beneficial process. The buyers on one hand wish

6
Cash Conversion Cycle or Cash-to-Cash cycle is the length of time it takes for a company’s
investment in inventory to generate cash, considering that some or all of the inventory is purchased
using credit.

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to delay payments for their specific financial situations and the suppliers on the other
desire accelerated collections. The solution comes with the application of SCF tools in
supply chains, which help build a “circle of trust” among the involved parties (buyers –
suppliers - banks) and set the framework for a win-win situation through simple and
fast payable processes.
Today, banks have managed to identify those elements that are necessary in
order to better address their customers’ SC needs through proper business tools
provided by SCF (e.g. RF, DD etc.). Due to the fact that these financing tools offer
increased reliability, which in turn reduces the required liquidity thus, improving their
capital adequacy ratios (the capital adequacy ratio - CAR is a measure of a bank's
capital and is expressed as a percentage of a bank's risk weighted credit exposures)7,
it is of major importance in view of the application of the stricter rules of Basel III (fully
operational from 2019), in terms of liquidity (Vousinas, 2015).

2.3 Modern issues in SCF

It is common knowledge among the research community and companies worldwide

that SCF and its tools provide critical support towards the achievement of efficient
supply chains, and supply chain cash flows and financing costs in particular. And as
mentioned before, the ever growing importance of SCF has been attributed mainly to
the financial crisis of 2008 and the subsequent recession. This crisis along with the
rapid technological change, in the context of the modern globalized economic
environment, has brought up a number of major issues and challenges, which are
discussed below.

2.3.1 The “Supply Chain Financial Bullwhip Effect”

In day-to-day business operations, supply chains are mostly optimized and monitored
for physical throughput, with the financial flows handled reactively and at transactional
level. But under crisis conditions this can change both suddenly and dramatically when
managers have to deal with the growing necessity to secure the smooth financial
operation of their companies through short-term working capital management
measures, such as reducing the level of inventories or improving the collection
timeliness and thus, impacting the physical material flows (Udenio et al., 2015).
Following the burst of the recent global financial crisis, which caused disruptions in the
funding markets and in the financial flow level of supply chains, companies were forced

7
Available from: https://www.investopedia.com/terms/c/capitaladequacyratio.asp. Accessed
15.2.2018.

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to reduce their working capital targets, as well as to find new forms of financing their
business plans, causing a substantial shock in the supply chains across the world thus,
creating both an inventory-driven bullwhip effect and a financial bullwhip8.
The bullwhip effect or Forrester effect (Forrester, 1961) describes the
phenomenon of the increasing propagation of operational volatility from bottom to top
along a supply chain that mainly refers to inventory and order flows (Lee et al., 1997).
While the previous supply chain research has focused on the bullwhip effect of physical
material flows, the existing bullwhip in financial flows (“financial bullwhip”) has been
neglected and until now there was no clear effort to describe and provide an
explanation of this phenomenon in the SCM universe. When the transmission channels
of shocks between financial sector and the real economy, especially the liquidity
channel (Vousinas, 2013), result on the amplification of financial disturbances across
SC, then we can refer to the phenomenon of the “Supply Chain Financial Bullwhip
Effect” (henceforth SCFBE).

The SCFBE can be defined as: “a phenomenon on the financial flow level of a
supply chain which involves the increasing amplification of financial distortion along it”
(Vousinas, 2018). Essentially, the SCFBE occurs when there exists an oscillation in
the financial flows from the financing institutions, due to various factors (internal &
external), causing cash flow fluctuations and financial distress at micro (firm) as well
as macro (economy) level. The related financial flows are reinforced under crisis
conditions, when the transmission channels of shocks between financial sector and
real economy result on the amplification of financial disturbances along the entire SC.
The SCFBE is a phenomenon that occurs at both micro and macro level, as the
financial flow disruptions pass through the economy to the firm level and affect severely
the SC. So, the primary goal is to examine how the burst of a financial crisis can lead
to a financial bullwhip effect along the entire SC (via the transmission channels),
placing the focus on the related financial flows, at both macro and micro level thus,
justifying the existence of the SCFBE.

There is limited research that addresses the SCFBE across global supply
chains. Further research and related case studies must be conducted towards this
direction in order to fulfill the existing gap and broaden our understanding regarding
the entire aspects of SCF.

8
The term “financial bullwhip” has been explored by Chen et al. (2013) on bondholders’ wealth along
a supply chain by examining whether the internal liquidity risk effect on bond yield spreads becomes
greater upwardly along the supply chain counterparties.

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2.3.2 Financial Technology (FinTech)

Financial technology or “FinTech” refers to the use of technology to deliver financial

solutions. The term’s origin can be traced back to the early 1990s and was the original
name of the Financial Services Technology Consortium, a project initiated by Citicorp,
a predecessor to today's Citigroup, so as to facilitate technological cooperation efforts9.
Originally, the term applied to technology used to the back-end of established
consumer and trade financial institutions. But since the end of the first decade of the
21st century, the term has expanded to include any technological innovation in the
financial sector, including retail banking and distributed ledger technologies like
blockchain.

2.3.2.1 Blockchain Technology

One promising FinTech innovation regarding SCF is the emergence of blockchain (eg,
Kakavand et al., 2017; Camerinelli, 2016; Peters et al., 2016). Blockchain is one type
of a distributed ledger. Distributed ledgers (DL) use independent computers - referred
to as nodes - to record, share and synchronize transactions in their respective
electronic ledgers, instead of keeping data centralized as in a traditional ledger10. While
blockchain was born with Bitcoin11, it can be applied into many diverse applications far
beyond cryptocurrency.
In essence, a blockchain is a public ledger that contains information on every
transaction made using the blockchain technology. A blockchain system is not based
on trust but instead on cryptographic proof, which allows conduct of direct transactions
between to consenting parties instead of trusting a centralized institution, such as a
bank, to handle the transaction (Nakamoto, 2008). This kind of technology can be used
for information sharing, monitoring and tracking assets and executing long-term
contracts. Further developments in this technology have allowed the running of small
programs (ie, smart contracts), which potentially enable trusted automation of
contractual relations between trading parties (Hofmann et al., 2017).
Since blockchain allows all kind of payments to be completed without any bank

9
Available from: https://www.americanbanker.com/opinion/fintech-the-word-that-is-evolves.
Accessed 15.2.2018.
10
Natarajan, Harish; Krause, Solvej Karla; Gradstein, Helen Luskin. 2017. Distributed Ledger
Technology (DLT) and blockchain (English). FinTech note; no. 1. Washington, D.C. : World Bank
Group. Available from: http://documents.worldbank.org/curated/en/177911513714062215/Distributed-
Ledger-Technology-DLT-and-blockchain. Accessed 15.2.2018.
11
Bitcoin: A peer-to-peer electronic cash system. Nakamoto, S. (2008).

10

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or other intermediary, integrating blockchain with SCF can save both cost and time, as
well as improve business efficiency. For example, Camerinelli (2016) suggests that at
least one-third of the most common SC processes could strongly benefit from the
features offered by Blockchain.
The emergence of blockchain systems has a huge potential impact on
traditional financial and business services. Peters et al. (2016) discussed that
blockchain has the potential to disrupt the world of banking. Blockchain technology has
also been proposed as an innovative solution to areas such as clearing and settlement
of financial assets, payment systems, smart contracts, operational risks in financial
market and so on (Kakavand et al. 2017). Besides, Morini et al. (2016) showed that
there are real business cases like collateralization of financial derivatives that could
leverage blockchain to reduce costs and risks. Blockchain has also caught the
attention of large software companies seen in the fact that Microsoft Azure12 and IBM13
are beginning to offer Blockchain-as-a-Service.
Of course, the potential benefits of this technological innovation are difficult to
assess, while the related research is still at its infancy. However, in the near future
might create great opportunities for all the involving parties in SC and bring a whole
revolution in the existing SCF practices.

3. Literature Review
3.1 Methodology

After the analysis of the main drivers behind the emergence of SCF, the clarification of
the term and a brief view of the existing challenges, a review of selected referred
journal articles follows in order to gather and analyze systematically the recent
developments on the field. By scrutinizing both theoretical and empirical literature and
giving emphasis on the contemporary aspects of SCF in terms of collaboration among
companies, suppliers and financing institutions, not only problematic areas are
identified, but also useful conclusions come to surface and certain suggestions are
proposed.
This review explores research papers which deal with the broad concept of SCF
in terms of theoretical - conceptual framing as well as empirical analysis and practical
implications. The time span examined is 2000 - 2016 in order to cover the most up-to-
date articles and due to the fact that prior period (1985 - 1999) didn’t provide any

12
Microsoft azure: Blockchain as a service. Available at https://azure.microsoft.com/
en-us/solutions/blockchain/, 2016. Accessed 15.2.2018.
13
IBM blockchain. Available at http://www.ibm.com/blockchain/, 2016. Accessed 15.2.2018.

11

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reliable data but scattered research. The time focus can also be attributed to the fact
that the rise of the SCF discipline is considered to have started at the beginning of the
21st century (eg, Hofmann, 2005; Pfohl and Gomm, 2009). It must be pointed out that
the articles which analyze the topic of Financial Supply Chain Management (FSCM)
were also included in the review process provided that there is no clear distinction
among the latter and SCF.
The selection methodology followed a three-step process as described below.
First of all, the research utilized Scopus, the world’s largest abstract and citation
database of peer-reviewed literature, containing scientific journals, books and
conference proceedings. The search was conducted by using the keywords “Supply
Chain Finance” and “Financial Supply Chain” found in both the abstract and in the main
body of the returned papers. For purposes of scientific validity conference proceedings
were excluded from the selection process. In this direction, the followed method
included only papers from the major SCM and Financial Management scientific
journals such as International Journal of Physical Distribution and Logistics
Management, Journal of Supply Chain Management, Business Process Management
Journal, Journal of Business Research etc. And in order to select from the returned
articles which of them required an in-depth analysis for possible inclusion to the final
pool, the main criterion was papers published (not exclusively) in top-listed journals
from each of the two examined fields ie, SCM and Finance, based on the SCImago
Journal Ranking Index.
Second, from all the identified papers, which were thoroughly studied, only those
with a close possible relevance to the SCF discipline were selected, discarding those
that mentioned the term only in the abstract / introductory sections or fragmented to
support auxiliary research. This criterion produced a total of 145 papers for deeper
analysis. The primary focus for inclusion of paper was:

1. Conceptual frameworks – Financial aspects. Examining papers which

develop general frameworks or concepts regarding the SCF discipline, but
focusing on the “financial dimension” rather than the SC.
2. Performance Measurement - KPIs. Referring to articles which deal with the
financial performance measurement issues ie, the usage of SCF metrics and
Key Performance Indicators (KPIs) to quantify firms’ financial performance.
3. Empirical Studies. Containing empirical papers such as case studies, surveys
etc. which employ empirical data to address the implementation of SCF
instruments (market view).

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 In conclusion, a total of 25 papers were finally chosen to be studied in detail and
be included in the final set of articles, with the primary purpose of offering the most up-
to-date research on the field of SCF, both from theoretical and market view.

3.2 Conceptual frameworks – Financial Aspects

Conceptual articles usually present general frameworks or concepts regarding SCF.

The focus of the selected reviewed papers in this section is put on defining the scope
of SCF application, the objectives, the actors involved, or the levers that can be
exploited.
Hofmann (2005) presents a holistic view of the financial supply chain,
emphasizing that operating and financial activities are interdependent and closely
connected. According to Hofmann (2005), SCF is based on the following three
constitutive elements:
 Institutional actor, it can be only a business actor in supply chain and/or involve
financial institution, private investor and government.
 Characteristic of SCM, regarding regulations in cooperation in supply chain
system such as contract regulation, financing system, pricing policy, etc.
 Financing function, types of utilization of financing such as for investment,
operational capital, goods supplying, marketing, etc.
Only considering operational or financial activities alone is sub-optimal, as there are
benefits in collaboration and alignment between them. The author also emphasizes
that even when considering institutions, financial functions and instrument of supply
chains in collaboration, SCF is still part of a more complex system.
Camerinelli (2009) considers the SCF approach as a set of financial solutions,
very often provided by financial institutions. The financial component, expressed
through invoices and payments, acts as the 'glue' between the various participants. In
such a context, control passes from corporates to the issuing institutions, ie the banks,
which also find themselves in difficult conditions owing to the serious economic crisis
and having to deal with an ever-more competitive market. By mapping the operational
processes in front of these as well as other financial solutions, the SC manager can
guide the finance colleague proactively to involve the bank of reference to obtain
solutions and services that positively condition the corporation's working capital.
A framework for investigating the financial issues in logistics and SCM is
proposed by Gomm (2010) which shows that taking a supply chain perspective on
financial issues offers great opportunities for SCM professionals. SCM can not only
contribute to improvements in sales, cost of sales, and the invested capital, but also

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has the potential to improve the capital cost rate as a long-neglected supply chain
driver of shareholder value.

Regarding collaborative SCF (Baiman and Rajan, 2002) there are two special
aspects to consider, each of them illustrated by a short case. First, investments in
supply chain collaborations mean that the participants jointly invest in objects that
would otherwise be outside their individual organization’s scope of consideration. The
number of investment alternatives therefore increases. A financial collaboration with
the company’s most important supplier offers a new investment alternative: Jointly
investing in the supplier’s distribution warehouse might potentially enhance the
organization’s procurement process even more. Second, the best investment
alternative now is the one delivering the highest value to all collaborating parties. This
entails considering the cash flows of all participants when deciding about different
alternatives. The opportunities of collaborative investment activities (eg, incremental
capital expenditure), collaborative debt management, and ways to collaboratively
influence the costs of capital (Weighted Average Cost of Capital - WACC), represent
areas for further improvement that should be thoroughly researched in future studies.

3.3. Performance measurement - KPIs

The short-term objectives of SCF are primarily to increase productivity and reduce
inventory and cycle time, via effective working capital management, while long-term
objectives are to increase market share and profits for all members of the SC. The
usage of SCF metrics (e.g. CCC, Days Payables Outstanding - DPO14 and Days Sales
Outstanding – DSO15) along with Key Performance Indicators (KPIs) can serve as a
tool for evaluating an organization’s financial behavior and performance over time, a
critical factor for the successful implementation of SCF solutions. The aim of this
section is to shed light on the existing research addressing the financial performance
measurement issues from the SCF view.
Logistics managers must measure and sell the value created by logistics to
customers, SC partners and their top management and reviewed methods of
measuring the value of logistics such as customer value-added, strategic profit model
(SPM) and Economic Value Added – EVA (Lambert and Burduroglu, 2000). In a similar
way, most of the performance measures called SC metrics are just logistics measures
with an internal focus, unable to capture how the firm drives value and profitability in
the supply chain (Lambert and Pohlen, 2001). Therefore, they proposed a framework

14
Available from: https://www.investopedia.com/terms/d/dpo.asp. Accessed 15.2.2018.
15
Available from: https://www.investopedia.com/terms/d/dso.asp. Accessed 15.2.2018.

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for developing SC metrics that translates performance into shareholder value using
the EVA method.
One main problem lies in the measurement gap between the more engineering-
driven SCM and the economists’ approach. In a European study (Ceccarello et al.,
2002), which used the Supply Chain Operations‐Reference - SCOR Model to
benchmark days of inventory, receivables, payables, return on investment and asset
turnover, and the level of integration and collaboration, significant impacts were found
from SCM practice and these five evaluated financial indicators. The results of a study
on the impact of SCM on overall organizational effectiveness, so as to identify
problems that affect SCM success. Results showed that organizations generally
considered themselves as successful at managing their supply chains, achieving
significant improvement in organizational performance, yet they have not reached the
order of magnitude of improvements ascribed to SCM (Elmuti, 2002).
Addressing the dearth of research into performance measurement systems
and metrics of supply chains, a critical review of the contemporary literature and
possible avenues for future research are suggested (Craig Shepherd and Hannes
Günter, 2006). Their article provides taxonomy of performance measures and argues
that despite considerable advances in the literature in recent years, a number of
important problems have not yet received adequate attention, including the factors
influencing the successful implementation of performance measurement systems for
supply chains, the forces shaping their evolution over time and, the problem of their
ongoing maintenance.
Randall and Farris (2009) used a case-based approach to demonstrate how
SCF management techniques, such as cash-to-cash cycle (C2C) and shared weighted
average cost of capital (WACC), can reduce the financial costs experience by a supply
chain. The findings provide a methodology to identify and quantify the potential
opportunities to increase profitability throughout the supply. Scenarios are offered that
illuminate potential SC improvements gained by collaborative management of cash-to-
cash cycles and sharing WACC with trading partners. The impact is reduced overall
cost generated by leveraging the financial strength of the entire supply chain. They
also emphasize the fact that during economic downturns and times of tight credit
proactively managing financials across the supply chain may be the only way some
suppliers remain afloat.
At a macro-level, the association among supply chain glitches and financial
operating performance was analyzed, with the usage of a sample of 884 glitches
announced by publicly traded firms and tested against a sample of control firms of
similar size and industries (Hendricks and Singhal, 2005). On average, the glitches

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lead to 6.92% lower sales growth, 10.66% higher growth in costs and 13.88% higher
growth in inventories. Financial management techniques may be used to improve
overall supply chain profitability and performance is provided by another group of
authors (Wesley et al., 2009). The proposed methodology includes scenarios that
illuminate potential supply chain improvements gained by collaborative management
of cash‐to‐cash cycles and sharing WACC with trading partners.
Chae (2009) highlights the need for the development of KPIs for the purposes
of measuring and monitoring SC performance. He seeks to offer a practical approach
to performance measurement and to present a list of key KPIs. This paper offers
insights from industry in the area of SC performance measurement and a practical
approach to developing performance metrics. It concludes that companies should
focus on only a small list of KPIs which are critical for their operations management,
customer service and financial viability. Potential KPIs should also be developed for
each of SCOR model’s four meta‐processes (plan, source, make, and delivery) and
need to be hierarchically grouped such as primary and secondary metrics.
In the context of working capital management, several papers approach the
analysis of SCF benefits from the point of view of the cash conversion cycle. CCC is
considered a powerful performance metric for assessing how well a firm manages its
working capital (Preve and Sarria-Allende, 2010). A firm with a lower CCC is more
efficient because it turns its working capital over more frequently; this leads to a higher
return on capital employed (ROCE). Reducing CCC lowers the amount of capital that
is tied up in the supply chain and raises profitability. However, reducing CCC in one
firm might have the undesirable effect of increasing the working capital for other firms
in the supply chain. Therefore, optimizing working capital from a supply chain
perspective requires ensuring a balanced CCC for all supply chain partners.
Farris and Hutchison (2002) argue that C2C metric is an important measure as
it bridges across inbound material activities with suppliers, via manufacturing
operations, and the outbound logistics with customers. It is emphasized that cash-to-
cash is a key performance indicator for the management of the entire SC.

Hofmann and Kotzab (2010) showed how a collaborative approach to cash-to-

cash cycle management leads to optimal solutions, whereas pressure to shorten
receivable collection and extend payable settlement times through the SC might
negatively affect the value of the organizations involved.

The contribution of the CCC as a proper measure of a firm’s performance, was

examined by Grosse-Ruyken et al. (2011). The empirical results indicate a significantly
negative relationship among the CCC and return on capital employed (ROCE). The

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authors argue that the optimal level of CCC for responsive supply chains must be
assessed holistically and conclude that the right working capital management depends
on the business model, its specific supply chain design configurations, and risk aspects
within the supply chain. A model is used to capture the interaction among firms’
operations decisions and financial risks (Yang and Birge, 2011) which demonstrates
that, given demand uncertainty, trade credit enhances supply chain efficiency by
serving as a risk-sharing mechanism.

3.4 Empirical Studies – Market view

SCM and SCF are undergoing a vast transformation. Since the average cost of
purchased materials, components, and services across manufacturing firms frequently
exceeds 60% to 70% of the total cost of operations (Wagner, 2006), the effective
management of the product, information and funding flows along the entire SC is
critical. Competition among firms nowadays means competition between supply chains
and networks (eg. More and Babu, 2009; Smith and Buddress, 2005). The importance
of successful SCF has been highlighted by a variety of empirical papers (case studies
and professional surveys), as presented below, which aim to examine both the
application of SCF tools as well as the degree of market adoption of SCF.

Fellenz et al. (2009) explore current models and practice regarding the
dynamics of financial flows along global supply networks. The authors suggest that
any improvement in available liquidity from the user side, for example through more
efficient financial flows, can be useful for the system as well as for the participating
firms. Moreover, progress in developing inter-organizational systems that promote
more efficient financial flows and also provide better financial transparency and
therefore better risk assessment and management, can provide important benefits.
This research has particular relevance in the light of the disruptions that the global
credit crunch has brought to global financial systems, as it highlights clearly that
changes to the financial system are inevitable and point to areas which need to be
aligned and to the challenges which need to be overcome. The key issue is that change
should not only address the limitations of current systems identified through the
financial crisis but should also take into account the inefficiencies and shortcomings
from operational and technological perspectives.
A group of studies adopts the real options approach (eg, Billington et al., 2002;
Costantino and Pellegrino, 2010) in order to help decision makers to make better
informed decisions about SC strategies and investments under uncertainty conditions.

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Similar to financial options, real options evaluate the benefits of managerial flexibility
and capture upside potential while limiting downside loss.
The necessity for a supply chain-spanning approach arises from the fact that
most firms are involved in inter-firm relationships in their supply chains and thus
depend on having stable and healthy partners (suppliers, retailers, customers, etc.).
The bankruptcy of even a single supplier in the supply chain might set off a domino
effect throughout the entire value chain. Managerial and scientific interest for SCF has
grown significantly since the recent financial crisis (Seifert and Seifert, 2011).

Through interdisciplinary and inter-firm cooperation, SCF concepts and

applications claim to offer integrated solutions to such problems. Nevertheless, the
SCM discipline itself is often surprisingly little involved in these solutions. A relatively
recent study (Pezza, 2011) indicates that the SC discipline is not involved in almost
50% of SCF programs surveyed. According to this study the impact of demand volatility
on available cash is a key factor behind these developments. Indeed, as demand
volatility calls on one hand for more safety stock investment but on the other hand
induces a desire to hold more precautionary cash, balancing these concerns may
become a challenge.

According to Wuttke et al. (2013) SCF targets the financial flow and allows
buying firms and their suppliers to improve working capital and reduce costs. In order
to close the gap between our knowledge on product and information flow-oriented
innovations and financial flow innovations along SCF, the authors opted for an
inductive multiple case study approach with six European firms. Their findings suggest
four sets of propositions and propose an extended SCF adoption framework revolving
around the interrelated adoption processes of buying firms and their corresponding
supplier bases.

Blackman et al. (2013) highlight the strategic importance of SCF for business
and academic researchers by performing a detailed case study of Motorola’s global
financial supply chain. The practical implications of their research suggest that the
development of integrated financial supply chains will lead to significant savings in
terms of funding, banking and administrative costs associated with treasury and
payment activities. The implementation and nature of the strategic change also
highlight important strategic planning and implementation issues associated with
financial supply chains. Conclusively, the research findings and comparison with
theory support the assertion that SCF is a relatively new and unexplored problem area
that is of direct relevance and interest to researchers in SCM.

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 More and Basu (2013) examine the different challenges that confront SCF via
carrying out an extensive survey among Indian firms and aim to develop a hierarchical
model that analyzes the complex relationship dynamics among them. The study
reveals that lack of common vision among the SC partners is the most critical challenge
confronting SCF. Unpredictable cash flows resulting from delays in financial
transactions, due to lack of automation in the payment processes, along with lack of
knowledge and training on SCF tools, also play significant roles. As organizations are
tightly integrated through their SC, they should initiate collaborative approaches across
the SC to reduce the total procure to payment cycle time and, in the process, improve
overall financial stability of the SC. Based on this study, firms can evaluate the
dynamics of SCF challenges and redefine SC relationships and strategies to achieve
desired cash flow in the SC.
Iacono et al (2015) aimed to show that market dynamics can significantly
influence the lifecycle and value of a SCF arrangement This was achieved by
constructing a model of market dynamics for reverse factoring, a specific type of SCF
arrangement. The authors identify the following market factors as key for direct
benefits:
 competition
 interest rates
 receivables volumes and
 firms’ working capital goals.
The main conclusion of the aforementioned study was that reverse factoring can yield
direct benefits for all SC participants, but that these benefits are highly dependent to
market conditions.

4. Concluding remarks and research challenges ahead

As analysed in this paper, SCF is a relatively new scientific concept, with exponential
growth in interest from both the research and business communities, mainly driven by
the recent global financial crisis and the consequent recession, as well as rapid
technological growth. But regardless of the increased level of interest in the topic of
SCF and its undisputed value, the relevant literature is still at an early stage, while at
the same time limited research contributions have been acknowledged in the direction
of SCF standardization and development of a general theory.

The contribution of the paper is threefold: to provide a general overview of the

SCF discipline by highlighting the major factors that led to its expansion, defining the

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term and its main applicable tools, while putting the focus on modern aspects of SCF;
to offer a structured, focused and up-to-date review on the critical issues of SCF; and
to identify the existing research gaps so as to serve as a useful guide to researchers,
professionals and relevant stakeholders.
The analysis provided has identified a number of key features regarding SCF:

 The financial crisis of 2008 along with the globalization of the economy,
technological growth and regulatory changes are the main drivers behind the
development of SCF

 The most common SCF tools are RF, DD, Inventory and Purchase Order
Financing

 The transmission of shocks among the financial sector and real economy
causing the amplification of financial disturbances across SC has led to the
introduction of the term SCFBE

 Rise of FinTech and especially blockchain technology

 Different definitions and approaches of SCF

 Financial performance measurement issues are addressed by the usage of

SCF metrics and KPIs, the most common of which are the CCC and the WACC

 Case studies and professional surveys have highlighted the significance of

SCF and the need for further involvement of its tools

Given the findings of this paper, it seems justified to predict an ever-increasing

significance and dissemination of SCF, not only stemming from and focusing on crisis
conditions and technological innovation, but also in every aspect of the modern
business world. However, several major challenges have been highlighted, which have
to be addressed and can be summarized to the following:

 enhancing the theory of SCF towards standardization

 risk mitigation for all participants

 improvement of existing financial performance measurement systems

 addressing the “Supply Chain Financial Bullwhip Effect”

 technological innovation such as FinTech and automation of SCF processes

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  application of blockchain technology – potential benefits (payment systems,
smart contracts, operational risks in financial market etc.)

 changing role of banks

 financial collaboration among SCF participants and financing institutions.

In conclusion, in spite of the crisis-driven research and the ever-growing significance

of SCF, academic contributions are limited, while few research steps have been
identified towards both the systematic documentation and the development of SCF
theory. This paper tries to shed light on the birth and the reasons behind the
emergence of the term SCF. It also provides a structured, up-to-date literature review
of the SCF concept by scrutinizing the related research contributions, identifying grey
areas and research gaps, and exploring the market adoption of SCF instruments via
relevant case studies. Even more, the paper offers insights on SCF hot topics (Supply
Chain Financial Bullwhip Effect and blockchain technology), thus preparing the ground
for SCF standardization and hopefully initiating a fruitful academic and professional
discourse on the subject.

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