Waves of disruptions have swept across the business world in the wake of US-China trade tensions and the Covid-19 pandemic. For many companies with global and regional manufacturing networks, these developments include shifting activities out of China and into parts of Southeast Asia and the Indian subcontinent. Amid such changes, the need to maintain supply chain financing, and the liquidity to support them, is crucial.
Following the virus outbreak, Deutsche Bank noted a high pick-up in the utilization of supply chain finance programmes and adopted measures to help clients. “We made sure that our clients with existing supply chain finance programmes continued to have access to cash and maintain sufficient liquidity to be able to make their purchases to continue production,” says Zandy Ip, director and head of supply chain finance - payables in Asia-Pacific at Deutsche Bank. “We need to keep their programme sustainable, an end-to-end supply chain finance that cannot be disrupted even by the pandemic that we are facing now.”
Ip says corporates are actively bringing more suppliers into the programme, and for corporates who are yet to establish any programme, they are now open for discussions on supply chain finance. Corporates also want to see whether more solutions can be put in place to support suppliers who are facing difficult situations.
At the same time, the pandemic has changed the suppliers’ perspective about joining supply chain finance programme. Ip explains: “There were suppliers who initially did not see a need to join the programme. They were either cash-rich or financially sound. But Covid-19 changed that mindset.”
Deutsche Bank is also working with anchor buyers who have abundant liquidity and want to deploy such liquidity to support their suppliers through a dynamic discounting programme. “Our ultimate aim is to find solutions to support our anchors and bring them back in an even stronger financial position than their pre-Covid-19 status,” says Ip.
Daniel Tan, director and regional product manager of financial supply chain in Asia-Pacific at Deutsche Bank, says dynamic discounting is aimed at corporates who are cash-rich and can offer financing to suppliers. “They can provide the suppliers financing on a turnaround basis as quickly as one day, compare with what would be a 30-day term or even a 120-day term,” he says. “Companies are currently looking to recover post-lockdowns, and this is a financing model that can help their recovery.”
Deutsche Bank has enhanced its capability to offer dynamic discounting to its clients. In July this year, the bank announced its investment in Frankfurt-based financial technology company Traxpay, which allows the bank to use the fintech firm’s platform to expand its supply chain finance offering. Traxpay offers corporate clients dynamic discounting and reverse factoring solutions to give them flexibility in managing their cash flows.
Buyers and sellers who use the dynamic discounting solution Traxpay benefit from flexible payment terms for goods and services. These buyers and sellers get a discount depending on when they decide to pay.
“A lot of corporates now want to use their balance sheet in a good way amid the current pandemic,” says Tan. “Working capital definitely has always been in corporates’ mind – how can they benefit from their existing liquidity. But now, many corporates are looking at how their balance sheet can work to help others, and that’s where dynamic discounting comes about.”
On the de-risking front, Tan says Deutsche Bank has a custom-built de-risking capability. “We are looking in the market where we can invite participants, which can be financial institutions or non-bank financial institutions,” he says. “It can be on a funded or an unfunded basis, and can take care of it in a straight-through manner. What that means is we are able to manage input/output to investors accordingly.”
Amid the pandemic, Deutsche Bank has reinforced its technological capability, such as in supply chain financing. “Technology is very important for Deutsche Bank because it is only with technology that we can achieve our goal to streamline clients’ solutions, enhance efficiency and stay innovative at the same time,” says Ip.
Leveraging such capability, Deutsche Bank has done fairly well on supplier onboarding, where the bank has made quite a lot of investment. “As a leading supply chain finance bank globally, we need to keep investing in this space to support our clients,” Ip points out. “We didn’t step up our technology investment because of the pandemic – it is something that we have been doing ever since.”
Deutsche Bank has a supplier onboarding portal, which allows for a more efficient onboarding process. “You don’t want to take three to four months to onboard a supplier as they maybe running out of cash,” says Ip. “It might then potentially impact our anchor’s production or sales, and a bank cannot have a successful supply chain finance programme if it does not have an efficient supplier onboarding process.”
“Deutsche Bank is in a state of not just innovating – we do listen to the market as well,” adds Tan. “We do see what the requirements are and we respond accordingly. We’ve created a self-help scheme where suppliers will be able to onboard themselves into the programme and ultimately do away with the need for hard copy documents.”
What Deutsche Bank has done is understand the suppliers’ pain points and then create a portal to ease the onboarding process. “The turnaround time has been shortened by a fair bit and even the servicing comes out more efficiently,” says Tan.
The bank also has something like a dashboard, which gives its clients the look and feel of analyzing how their suppliers are performing under the programme. It is currently working to improve the dashboard’s capability from the user’s perspective. Deutsche Bank likewise has a bank-agnostic trade information network, which clients can connect via an API (application programming interface).
One of the things that has emerged against the current market backdrop is the growing involvement of the procurement team in the decision of suppliers to join a supply chain finance programme. Says Ip: “Previously, the procurement team might not care whether suppliers join in the bank’s supply chain finance programme or not. As long as the suppliers agree to the payment terms without the use of additional financing, it was fine with the team as they achieved their objective anyway. Joining the programme or not is not an issue.”
Nowadays, the situation is changing. “Even if the suppliers agree to extend the payment terms, the procurement team still want the suppliers to be in the supply chain finance programme,” says Ip. “They strongly recommend that the suppliers join the programme because they do not want to see any sudden bankruptcy and the business shutting down. They have to ensure the suppliers have the liquidity during the difficult situation.”
For Ip, this is, indeed, a common trend. “Previously, we see the struggle between the treasury team and the procurement team when they want to launch a supply chain finance programme. Now they are actually working closely together – they have common KPIs (key performance indicators) on the working capital improvement. Cost definitely is important. Efficiency comes next and risk assessment will also be a key KPI for the procurement team.”
Adds Tan: “Apart from efficiency, every corporate is now looking at the so-called risk mitigator. It is no longer about how fast can I move, but what are the risks that I will face if I move this fast.”
In addition, while saving is still taken into consideration, corporates are now stocking up on their inventory to minimize the impact of possible disruptions in the supply chain. They want to ensure a robust sourcing of raw materials, and it does not matter whether their potential suppliers are located onshore or offshore. “If there will be a disruption in the supply chain, it is important for corporates to have alternative sources to be able to continue production,” says Tan.
Another key observation is how suppliers themselves are diversifying their production base to other countries. “In this regard, it is necessary for Deutsche Bank to match the footprint of our clients,” says Ip. “We need to have the network to engage our clients in different locations to be able to provide a sustainable supply chain finance programme.”