EUROMETAL at eXplore conference on supply chain finance

EUROMETAL participated this Tuesday in the eXplore Spring conference at the Luxembourg Chamber of Commerce entitled “Why is finance vital for the performance of the supply chain?”.

This conference organized by the Cluster for Logistics and the University of Luxembourg was attended by several speakers from the Luxembourg university, the MIT network and the logistics sector.

This less popular aspect of the supply chain actually has a profound impact on a company’s operations and finances. Experts presented their view on Supply Chain Finance issues. Supply Chain Finance basically covers the connection between Buyers, Suppliers and Banks but in detail, the relation is quite complex. The speakers of the day were generally in favor of enhancing the trust between actors. Before the pandemic, keeping promises in delivery and payment was the norm. However the relation seems to have suffered with the polycrisis.

An explanation on how supply chain finance can work in principle was given by Spyros Lekkakos of the Zaragoza Logistics Center. The presentation included contractual payment delays in order to enhance working capital. Jim Rice from MIT gave a good overview on the difference between risk and resilience. Mitigating risks is not necessarily enhancing the resilience of a company. Many companies focus on the risk aspect but investing in general resilience programs is costly and revenues are uncertain. Companies should however have a good overview on their time to survive and time to recover when a supply chain breaks.

That difference between legal requirements and the actual relationship between the supplier and the buyer has been addressed by Dirk Zetzsche, Full professor in Financial Law, University of Luxembourg. Suppliers are in a dependent role and as such they will not sue until the relationship ends. Contracts with force majeure clauses are also being abused to delay payments.

Enrico Benetto, Researcher and head of Environmental Sustainability Assessment and Circularity Unit from LIST, took a good view on the sustainable finance requirements for companies and supply chains. The Corporate Sustainability Reporting Directive (CSRD) forces large companies to disclose information on social and environmental issues, and on the impact of their activities. This includes scope 3 emissions, which are typically difficult to control or assess.

Supply Chain resilience is a must in a VUCA world

Customs and VAT is an important part of supply chains but often overlooked as well. Karine Bellony, Founding partner of VAT Solutions showed via examples how the location of importing and exporting influences cost and income. The customs and VAT regulation can differ largely and include anti-damping taxes and varying VAT rates. Customs nomenclature, origin, value and final destinations have to be taken in consideration when choosing a company or warehouse location.

Jean-Baptiste Danckaert, Manager in Organization and Change Management at Resultance presented the KPIs to measure the Supply chain performance. He went into more detail regarding the Days of Inventory (DOI) metric. The DIO represents the number of days during which a product stays in inventory. With the right data, it is useful to get a balance between good and bad inventory and thus reduce costs and enhance resilience.

The clients of the company Resilinc have to deal with one disruptive event per week, says Christophe Philippart, VP Sales EMEA. He mentioned the importance of data to get better visibility for better operational resilience. it is important to correctly assess different tiers of risk in a company and not just consider the corporate visibility level. As mapping data can be difficult, autonomous AI mapping might help to rapidly gain visibility into the supply chain network.

Kamil Mizgier, Global Supplier Relationship and Risk Management Leader at Dow Chemical presented the supply chain financing risks of a large company like DOW during the pandemic. it is not easy to go from Reactive to Proactive Supplier Risk Management, but Supplier Risk Management Strategies are important to get an overview of the network.

Geopolitical issues are a source for disruption for a automotive supplier companies, says Paul Schockmel, CEO of IEE. The Luxembourg based company manufactures electronic sensors in several countries, mostly for the automotive sector, and is deeply dependant of functioning supply chains. The pandemic impacted the company’s manufacturing capacities as microchips became harder to come by. The amount of electronics in cars is growing and in the short term, suppliers will need to Focus on downsizing the inventory and improve cash balance and adopt a multi sourcing strategy. In the long term, the EU commission has to create a European chip ecosystem to become self-sufficient in critical areas.

Mark Douglas from Prime Revenue notes that companies struggle to adapt in a VUCA world, where Volatility, Uncertainty, Complexity and Ambiguity rule. the catch phrase is “Hey, it’s crazy out there!”, says Douglas, and notes that populist policies and gamechangers like AI have to be understood and addressed. He prefers to switch the words of the VUCA acronym to Vision, Understanding, Clarity and Agility but for that, Supply Chain resilience strategy is a must and Supply Chain Finance can help.

The public presentations of the conference can be found below.