Session 6B: Supply Chain Finance

Prof. Dr. David Wuttke

Technische Universität München
School of Management
Campus Heilbronn
Heilbronn, 2023
Motivation and Mechanism of Supply Chain Finance

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 2
Supply Chain Finance

Payment delay 60 days

Buyer
Supplier

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 3
Supply Chain Finance

Payment delay 60 days

Buyer
Supplier

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 4
Supply Chain Finance

Payment delay 60 days

Buyer
Supplier

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 5
Supply Chain Finance

Payment delay 60 days

Buyer
Supplier

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 6
Supply Chain Finance

Payment delay 60 days

Buyer
Supplier

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 7
Supply Chain Finance

Immediate
Payment

Payment delay 60 days

Buyer
Supplier

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 8
Supply Chain Finance

Immediate
Payment Extended
payment terms 90
days

Payment delay 60 days

Buyer
Supplier

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 9
Supply Chain Finance Benefits
Without Supply Chain Finance

Interest rate Duration Cost

Supplier 10% 60 days € 8,333
Buyer 4.5% 60 days € -3,750

With Supply Chain Finance

Interest rate Duration Cost

Supplier 5% 90 days € 6,250
Buyer 4.5% 90 days € -5,625

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 10
Factoring – Reverse Factoring – Supply Chain Finance

Supply Chain Finance

 Includes automation platform Reverse Factoring

 Provides functionality  Underlying idea:
 What executives care about, Factoring triggered by
practical perspective the buyer
 Pure payment
mechanism, theoretical
perspective

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 11
SCF Benefits

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 12
Supply Chain Finance: Value Drivers

Facilitate better inventory

Random demand
decision

Real option – like a credit line for

Information transparency
free

Willingness of suppliers to co-

Supplier size
adopt quickly

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 13
Adoption of Supply Chain Finance – qualitative aspects*

*) Based on DA Wuttke, C Blome, K Foerstl, and M Henke (2013) Managing the innovation adoption of supply chain finance — Empirical
evidence from six European case studies, Journal of Business Logistics 34 (2), pp. 148-166

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 14
Adoption of Organizational Innovation (Rogers, 1995)

source:
Rogers, E. M. (1995). Diffusion of innovations (4th ed.): Simon and Schuster.
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Empirical Sample
Firm 1 Firm 2 Firm 3 Firm 4 Firm 5 Firm 6
Industry Coatings Aviation Chemistry Pharma Raw Automotive
materials
S&P’s rating BBB+ BBB+ BBB- AA- A- A-

First 2010 2009 2009 2009 2008 2006

exposure to
SCF
Adoption Matching Matching Restructuring/ Restructuring/ Clarifying Routinizing
Stage (awareness) (potentially redesigning redesigning (on- (continuing)
rejecting) (evaluation) (piloting) boarding of
suppliers)

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Research Findings

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Research Findings

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Research Findings

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Research Findings

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 20
Effectiveness versus Relationship Tradeoff

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 21
An Empirical Analysis of Supply Chain Finance Adoption*

*) Based on Wuttke, D; Rosenzweig, E; Heese, S. (2019) An Empirical Analysis of Supply Chain Finance Adoption, Journal of Operations
Management 65 (3), pp. 242-261

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 22
 “ In fact, research shows that […] buyers (those who set up an
SCF program) consistently rank supplier onboarding as the
single most important factor in a successful program.

Herath (2015), McKinsey on Payments

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Research Questions
What are the key drivers of supplier adoption speed?

How can fast adopters be identified?

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 Efficiency Motive Legitimacy
Drivers Motive Drivers

Supplier
Adoption
Speed

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Conceptual Model

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Conceptual Model

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Managerial Implications

Buyers can achieve faster • Financing cost reductions are effective

• Smaller suppliers adopt faster: approach them first to build up normative pressures
adoption • Mimetic pressures: target suppliers in industries with higher SCF adoption rates earlier

Buyers should avoid • Do not underestimate the time it takes to get suppliers on board
• Do not go straight for the largest supplier
common pitfalls • Do not be focused too much on your own benefits at the beginning

• Generate legitimacy
Suppliers could • Understand that substantial payment terms extensions are quite usual

SCF providers could • Extend supplier-portfolio approach by including time dimension

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SCF Criticism

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Source: Strom, S. (2015). Big companies pay later, squeezing their suppliers. The New York Times, April 6.

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Source: Pettypiece, S., Townsend, M., & Cloeman-Lochner, L. (2015, 21.09.2015).
Now, Suppliers are Wal-Mart's Main Squeeze. Businessweek.

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Recommended Reading
Wuttke, D. A., Blome, C., Foerstl, K., & Henke, M. (2013). Managing the innovation adoption of supply
chain finance—Empirical evidence from six European case studies. Journal of Business Logistics,
34(2), 148-166.

This is the first original publication that we are talking about in this session.

Wuttke, D. A., Rosenzweig, E. D., & Heese, H. S. (2019). An empirical analysis of supply chain finance
adoption. Journal of Operations Management, 65(3), 242-261.

This is the second original publication that we are talking about in this session.

Prof. Dr. David Wuttke | Operations and Supply Chain Management | TUM Heilbronn | 2023 32