Apr 18 2023

explore 2023: Supply Chain Finance in a VUCA World

The Cluster for Logistics and the University of Luxembourg invited to their second joint eXplore Spring conference on 18th April 2023 at the Chamber of Commerce entitled "Why is Finance vital for supply chain performance?".

This less popular aspect of the supply chain actually has a profound impact on a company's operations and finances. Several experts from the Luxembourg university, the MIT network and the logistics sector presented their view on Supply Chain Finance issues. Supply Chain Finance basically covers the connection between Buyers, Suppliers and lenders and other financial institutions 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.

A photo gallery can be found here

Pass: explore23

Malik Zeniti, Director of C4L, and Benny Mantin, Director of the Luxembourg Centre for Logistics and Supply Chain Management (LCL), welcomed the over 70 guests at the Chamber of Commerce in Luxembourg. Benny Mantin gave an overview of the activities of the university and the masters program. The conference connects students with logistics companies. Ten posters of this year's Masters projects were shown at the conference as well.

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. With the help of modern technology, it could however be possible to grant dynamic discounts for early payments from Buyers. Spyros Lekkakos clarifies that SPF is an integral approach to reduce the external cost of finance. He covered two notions: dynamic discounting and reverse factoring. Both should lead to win-win-win arrangements.

Jim Rice from MIT gave a comprehensive 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. He also demonstrated Toyota’s decision to invest into enhanced resilience.

That difference between legal requirements and the actual relationship between the supplier and the buyer has been addressed by Dirk Zetzsche, Full professor in the ADA chair in Financial Law, University of Luxembourg. Suppliers are in a dependent role and as such they will not sue their buyers unless 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 deeper 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.

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 bilateral agreements, 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 outstanding (DIO) 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 on one disruptive event per week on average, 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. Kamil Mizgier also introduced the concept Economic SC Risk Capital (ESCRC) which can support investment decisions into resilience

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.

A networking cocktail concluded the conference organized by the Cluster for Logistics and the University of Luxembourg with the support and sponsorship of the Chamber of Commerce and SupplierSentinel. 

The public presentations of the conference can be found below:

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