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A Lifeline for Suppliers

Supply chain finance programs flow into the mainstream as a working capital solution that keeps suppliers afloat in a rough credit environment.

By Richard Gamble | Updated on October 01, 2010

As supply chains become more interdependent, skirmishes over working capital advantage are taking a toll. It’s time for a new approach, says Wayne Evans, vice president for procurement at DHL Global Business Services, a Plantation, Fla.-based subsidiary of Germany’s $66.2 billion Deutsche Post. DHL had a plan to optimize working capital in its supply chain: push terms out to 60 days. Now it’s changing that plan. “Initially, we thought that 60-day terms would be the solution, but we’re finding that it’s not that simple,” Evans says. “There’s benefit to extending terms, but also a cost. If we pay for our suppliers’ cost of financing their extended [days sales outstanding], and their cost of financing is higher than ours, we’re not getting such a good deal. “We’re still shooting for 60-day terms where possible, but we’re trying to understand the implications of extending terms, and that is not simple,” he explains. “We’re analyzing those consequences case by case, looking at the total cost of ownership and trying to make the best business decisions. We’re having conversations with suppliers to better understand their situation and maybe find better solutions together.”

Supplier pricing is not very transparent, he adds. “You often don’t know how they build in their cost of credit, so you don’t know what that is costing you.”

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