Financing Through Inventory Ownership Solutions Is a New Supply Chain Reality
Inventory Ownership Solutions are becoming the new normal.
According to data from research firm Coalition, the world’s top banks have had a productive year in 2020 in one interesting area: supply chains. As organizations across all industries struggle with inventory, they have turned to finding alternative ways to pay suppliers in a time when working capital is scarce. Based on Coalition’s findings, banks have earned over $27 billion from supply chain financing in 2020, up 5.5% from the previous year. Before this, the average annual increase was 2.2%.
2021 has seen a similar trend. In some cases, financing seems to be the only option to maintain solvency, and such reliance can pose a risk if mishandled. A recent study by RapidRatings, which assigns companies a Core Health Score based on their longer term strengths and weaknesses, confirms many analysts’ fears.
“Among companies at or under $50 million in revenue in the semiconductor industry, the average score now sits at 40 on our 0-100 point scale, one point above our high-risk category,” writes James H. Gellert, chairman and CEO of RapidRatings, in an article for Barron’s. “Over 90% of companies that have failed in the past 20 years were rated at 40 or below. All that said, this subcategory of companies has an average Financial Health Rating — which measures short-term default risk — of almost 60, giving it the largest delta between short-term default risk and long-term core quality in the industry.”
While this is a worrisome trend, there are positive trends seen in this data, as well. For example, through the supply chain crisis companies have striven to increase friction between supplier and customer. In other words, companies on both sides of the supply chain are promoting collaboration through increased transparency. “Supply-chain risk professionals who engage with … suppliers to understand their financial health are best positioned to help mitigate problems and build the most resilient supply chains possible — creating value for both customer and supplier, and helping the investor-relations professionals and chief financial officers of the world communicate trustworthy narratives hinged on true resiliency,” writes Gellert.
This increased friction has long been a core benefit of Partstat Inventory Ownership Solutions. As suppliers realize instant payment for inventory, especially for large bulk orders, this often opens up doors such as the option to pass discounts back to the customer. Although every organization will have different needs and financial situations, an Inventory Ownership Solution results in secure, guaranteed business continuity through a crisis that leaves the customer in even better financial standing than it was before the solution. As long as the company does not over-exert itself financially and maintains a regular payment schedule, the supply chain will be as secure as it could possibly be.