Supply chain management is in the spotlight during the COVID-19 pandemic, as smaller suppliers face economic hardship and manual, paper-based processes hamper corporates' attempts to quickly respond to risks in their supply chain.
Bringing efficiencies to purchase order management
For analytics solutions provider Quantzig, purchase order management is a key process to get right in order to be set up for success in supply chain management. The purchase order document includes product descriptions, prices, discounts, quantities, date of shipment, terms of payment, and other terms and conditions. When the seller accepts all the terms and conditions mentioned in the purchase order, then the contract becomes legally binding on both the parties.
The purchase order is used by corporate finance departments for forecasting and budgeting. Therefore, purchase order flow management becomes essential for businesses that deal with large volumes of purchase orders. If any business fails at purchase order management, it can lead to chaos in the procurement and finance department. As such, Quantzig recently published an article that included five purchase order flow management best practices for corporates. They are as follows:
- Assess existing workflows.
- Establish a central supplier directory.
- Improve authorisation processes.
- Focus on quality assurance.
- Improve the cancellation process.
Purchase order management is clearly an area where corporates can review their processes and assess if there are areas where greater efficiencies can be achieved. The 5-point checklist from Quantzig is a good place to start.
The role of inventory financing
Elsewhere, inventory financing offers another supply chain solution, one that is particularly appealing to SMEs. In the US, GoTrade, a trading arm of Drip Capital, this week announced that it has signed a deal worth US$4m with a seafood importer based out of New Jersey.
The company notes that access to working capital has been a problem among SMEs for a while now. In most of the cases in the US, importers must pay the suppliers once their shipment is cleared by the Food and Drug Administration (FDA). This process could take from a week to a couple of months, locking the working capital for the buyer for that period.
A client of Drip Capital explained that amid limited working capital and reduction in number of fresh orders, GoTrade's credit line helped them in sourcing 50% more shipments during the peak season, thereby servicing their retail partners efficiently while beating competition, as well as getting rid inefficient and expensive letters of credit (LCs) that their suppliers in Indonesia and Vietnam were insisting on.
There is significant demand for alternative financing options globally, especially among SME-dependent economies. Drip Capital says it has been offering its inventory financing product to the importing community in the US for about a year now. Previously, the Palo Alto-based company has been providing post-shipment financing solutions to SMEs in emerging economies such as India and Mexico. So far, the company has issued credit worth US$800m to over 400 exporters in these countries.
Talking about the development, Pushkar Mukewar, co-founder and co-CEO of Drip Capital said, "The core value of the company is to innovate and solve the problem of the export-import community. Go-Trade is part of this effort where we are trying to solve the working capital issues among the buyers' community."
Go-Trade provides a line of credit that buyers/traders can avail by pledging their inventory to the company. From in-transit shipments to unsold inventory at any public warehouse, SMEs can sell their inventory to Drip to solve their working capital problems. In return, Drip will release 80% of the inventory value upfront. SMEs can buy back the inventory as and when they need to sell the commodity to other parties, in any quantity.
Explaining the solution further, Neil Kothari, co-founder and co-CEO at Drip Capital said, "The SMB doesn't have to buy back the entire inventory in one go; instead, it could free up the inventory depending on the orders received. SMBs can avail a credit line of up to US$10 million with just one click and zero paperwork."
Drip Capital says it aims to sign up more such SMEs and help them unlock working capital by buying their inventory through this solution. "We have also built capabilities to fund in-transit cargo. This new product will allow us pay the supplier on behalf of the buyer before the cargo even reaches US shores," Kothari added.
Drip Capital also remains committed to working with existing and new customers in the US market despite the turmoil of the COVID-19 pandemic.
"We have received a lot of queries about the impact of the COVID-19 pandemic on trade, and on our offering," Mukewar added. "The team at Drip Capital is confident that international trade of essential commodities like seafood and meat will continue despite the current situation. We are focusing our efforts on limiting disruptions to our clients and will continue to support them in every way we can to facilitate and assist with their working capital needs."
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