Supply Chain Finance: Mechanisms, Risk Analytics, and Technology

Preface
Acknowledgments
Contents
About the Author
List of Figures
List of Tables
Part IBasics of Supply Chain Finance
1 Introduction to Supply Chain Finance
	1.1 Introduction
	1.2 The Definition of Supply Chain Finance
	1.3 The History of Supply Chain Finance
	1.4 Financing Small Businesses
		1.4.1 Defining Small Businesses
		1.4.2 The Importance of Financing SMEs
		1.4.3 The Small Business Lending Gap
		1.4.4 Challenges in Financing Small Businesses
	1.5 The Importance of Supply Chain Finance
	1.6 Summary
	1.7 Exercises
		1.7.1 Practice Questions
		1.7.2 Case Study
	References
2 Supply Chain Finance Characteristics
	2.1 Introduction
	2.2 The Four Flows of Supply Chains
		2.2.1 Product Flow
		2.2.2 Information Flow
		2.2.3 Financial Flow
		2.2.4 Risk Flow
	2.3 Supply Chain Finance Types
		2.3.1 Supply Chain Finance Initiator
		2.3.2 Supply Chain Finance Source
		2.3.3 Supply Chain Finance Timing
	2.4 Supply Chain Finance Pros and Cons
	2.5 Supply Chain Finance Effects
		2.5.1 Supply Chain Relationship Effect
		2.5.2 The Seesaw Effect in Working Capital
		2.5.3 The Pareto Effect in Profit
		2.5.4 The Domino Effect in Liquidity
		2.5.5 The Halo Effect and Ripple Effect in Firms’ Performance
	2.6 Principles of Measuring and Selecting Financing Schemes
		2.6.1 The Revised 6R Model: A Measurement Principle
		2.6.2 The Selection Principles
	2.7 Summary
	2.8 Exercises
		2.8.1 Practice Questions
		2.8.2 Case Study
	References
3 Financial Analysis
	3.1 Introduction
	3.2 Financial Statements
		3.2.1 Balance Sheet
		3.2.2 Income Statement
		3.2.3 Cash Flow Statement
	3.3 Profit and Asset Ratios
		3.3.1 Profit Margin
		3.3.2 Return on Equity
		3.3.3 Return on Capital Employed
		3.3.4 Return on Assets and Return on Net Assets
		3.3.5 Return on Invested Capital
		3.3.6 Economic Value Added
		3.3.7 Asset Turnover Ratio
	3.4 The DuPont Analysis
		3.4.1 The ROE DuPont Model
		3.4.2 The ROA DuPont Model
		3.4.3 The ROIC DuPont Model
	3.5 Chain Aggregated Indexes
		3.5.1 Performance Indexes
		3.5.2 Chain Equality Indexes
	3.6 Summary
	3.7 Exercises
		3.7.1 Practice Questions
		3.7.2 Case Study
	Appendix: Walmart Inc. Financial Statements 2018–2020
	References
4 Working Capital Management
	4.1 Introduction
	4.2 Cash and Working Capital
		4.2.1 Accounts Receivable and Accounts Payable
		4.2.2 Working Capital
		4.2.3 Free Cash Flow
	4.3 Cash Conversion Cycle
		4.3.1 Days Inventory Outstanding
		4.3.2 Days Sales Outstanding
		4.3.3 Days Payable Outstanding
		4.3.4 Cash Conversion Cycle (CCC)
	4.4 Implications of the Cash Conversion Cycle in Retailing
		4.4.1 CCCs of Major Retailers
		4.4.2 Ethic Concerns of Negative CCCs
	4.5 Liquidity Indexes
		4.5.1 Current Ratio
		4.5.2 Quick Ratio
		4.5.3 Operating Cash Flow Ratio
		4.5.4 Leverage Ratios
		4.5.5 Working Capital Index
	4.6 Summary
	4.7 Exercises
		4.7.1 Practice Questions
		4.7.2 Case Study
	References
Part IISupply Chain Finance Mechanisms
5 Trade Finance: The Early Forms of Supply Chain Finance
	5.1 Introduction
	5.2 Cash-in-Advance and Push Supply Chains
	5.3 Consignment and Pull Supply Chains
	5.4 Letter of Credit
		5.4.1 Process Flow
		5.4.2 Payment Methods
		5.4.3 LC Types
	5.5 Open Account
		5.5.1 Seller-Oriented Trade Credit Discount
		5.5.2 Trade Credit vs. Bank Credit
		5.5.3 Buyer-Oriented Early Payment Discount
	5.6 Documentary Collections
		5.6.1 Process Flow
		5.6.2 D/C vs. LC and Others
	5.7 The Incoterms Rules
	5.8 Case Study: The Enlightened Consignment Choice
		5.8.1 The Case
		5.8.2 Case Analysis
	5.9 Summary
	5.10 Exercises
		5.10.1 Practice Questions
		5.10.2 Case Study
	Appendix: Academic Perspective
		Introduction
		The Model
		Theoretical Findings
	References
6 Seller-Led Supply Chain Finance
	6.1 Introduction
	6.2 Factoring
		6.2.1 Case Study: A Cash Flow Problem
		6.2.2 Process Flow
		6.2.3 Factoring Cost
		6.2.4 Factoring Amount and Cash Balance: A Simplified Analysis
		6.2.5 Comparison and Benefits of Factoring
		6.2.6 Risks and Risk Mitigation
		6.2.7 Variations of Factoring
	6.3 Forfaiting
		6.3.1 Process Flow
		6.3.2 Comparison with Factoring
		6.3.3 Pros, Cons, and Risk Mitigation
	6.4 Invoice Discounting
	6.5 Purchase Order Financing
		6.5.1 Process Flow
		6.5.2 Pros, Cons, and Risk Mitigation
	6.6 Seller-Led Accounts Receivable Securitization
		6.6.1 Process Flow
		6.6.2 Benefits
		6.6.3 Risks and Risk Mitigation
		6.6.4 Comparison to Other Financing Schemes
	6.7 Summary
	6.8 Exercises
		6.8.1 Practice Questions
		6.8.2 Case Study
	Appendix: Academic Perspective
		Introduction
		Model
		Main Findings
	References
7 Buyer-Led Supply Chain Finance
	7.1 Introduction
	7.2 Dynamic Discounting
		7.2.1 Process Flow
		7.2.2 Pros, Cons, and Risk Mitigation
	7.3 Reverse Factoring
		7.3.1 Process Flow
		7.3.2 Benefits
		7.3.3 Risks and Risk Mitigation
		7.3.4 Comparisons to Other Mechanisms
		7.3.5 Globalization and Challenges
	7.4 Buyer-Led Approved Payables Reverse Securitization
		7.4.1 Process Flow
		7.4.2 Benefits and Risk Mitigation
	7.5 Case Study: Impact of Extended Payment Terms
		7.5.1 The Case
		7.5.2 Case Analysis
	7.6 Summary
	7.7 Exercises
		7.7.1 Practice Questions
		7.7.2 Case Study
	Appendix: Academic Perspective
		Introduction
		Supply Chain Finance Game Model
		Main Findings
	References
8 Inventory and 3PL-Led Financing
	8.1 Introduction
	8.2 Inventory Financing
		8.2.1 Process Flow
		8.2.2 Benefits
		8.2.3 Risks and Risk Mitigation
	8.3 3PL-Led In-Transit Inventory Financing
		8.3.1 Process Flow
		8.3.2 Benefits
		8.3.3 Risks and Risk Mitigation
	8.4 Applications of 3PL-Led Supply Chain Finance Innovation
		8.4.1 Case Study: UPS Capital’s Custom Solution for Global Glove
		8.4.2 Case Study: The Role of 3PL as a Supply Chain Orchestrator
	8.5 Summary
	8.6 Exercises
		8.6.1 Practice Questions
		8.6.2 Case Study
	Appendix: Academic Perspective
		The Model and the Cash Flow Dynamics
		Main Findings and Contributions
	References
9 Other Supply Chain Finance Mechanisms
	9.1 Introduction
	9.2 Distributor Financing
		9.2.1 Process Flow
		9.2.2 Benefits
		9.2.3 Risks and Risk Mitigation
	9.3 Bank Payment Obligation
		9.3.1 Process Flow
		9.3.2 Benefits
		9.3.3 Supply Chain Finance in the BPO Framework
		9.3.4 Risk Mitigation
		9.3.5 Comparisons with Other Supply Chain Finance Mechanisms
	9.4 Structured Commodity Finance
		9.4.1 Variants
		9.4.2 Process Flow
		9.4.3 Benefits
		9.4.4 Risk Mitigation
	9.5 Summary
	9.6 Exercises
		9.6.1 Practice Questions
		9.6.2 Case Study
	References
Part IIISupply Chain Finance Risk Analytics
10 Risk Taxonomy and Assessment
	10.1 Introduction
	10.2 A Conceptual SCF Risk Management System
	10.3 Supply Chain Finance Risk Taxonomy
		10.3.1 Financial Risk
		10.3.2 Supply Chain Risk
		10.3.3 Non-Commercial Risk
	10.4 Qualitative Risk Assessment
		10.4.1 Risk Severity Matrix
		10.4.2 5 Cs of Credit Risk Analysis
	10.5 Quantitative Risk Assessment
		10.5.1 Probability Distribution
		10.5.2 Standard Deviation
		10.5.3 Coefficient of Variation
		10.5.4 Altman’s Z-Score
	10.6 Summary
	10.7 Exercises
		10.7.1 Practice Questions
		10.7.2 Case Studies
	References
11 Risk-Adjusted Evaluation
	11.1 Introduction
	11.2 Value-at-Risk (VaR)
		11.2.1 Definition of VaR
		11.2.2 Computation of VaR
		11.2.3 VaR in Risk Management
	11.3 Conditional VaR
	11.4 Stress Testing
		11.4.1 Stress Testing Based on Economic Insights
		11.4.2 Stress Testing Based on Historical Events
		11.4.3 Stress Testing vs. VaR
	11.5 Risk-Adjusted Return Ratios
		11.5.1 Risk-Adjusted Return on Capital
		11.5.2 Return on Risk-Adjusted Capital
		11.5.3 Sharpe Ratio
	11.6 Summary
	11.7 Exercises
		11.7.1 Practice Questions
		11.7.2 Case Study
	Appendix: Academic Perspective
		Introduction
		Supply Chain Finance Model with Intermediate Product
		Main Findings
	References
12 Risk Mitigation and Management
	12.1 Introduction
	12.2 Foundations for Supply Chain Finance Risk Mitigation
		12.2.1 Asymmetric Risk Theory
		12.2.2 Risk-Reward Pareto Frontier
		12.2.3 The Weakest Link Dilemma
		12.2.4 PPRR Risk Management Model
		12.2.5 PIARA Risk Management Process
	12.3 Traditional Risk Mitigation Strategies
		12.3.1 Financial Risk Mitigation
		12.3.2 Supply Chain Risk Mitigation
		12.3.3 Non-Commercial Risk Mitigation
	12.4 SCF-Based Insurance and Credit Guarantee
		12.4.1 Bank Loan Insurance
		12.4.2 Bank Guarantee
		12.4.3 Credit Guarantee Scheme
		12.4.4 Buyer Credit Guarantee for Export Contracts
		12.4.5 Trade Credit Insurance
	12.5 Guarantor Financing by Supply Chain Firms
		12.5.1 Seller Guarantor Financing
		12.5.2 Buyer Guarantor Financing
		12.5.3 3PL Guarantor Financing
		12.5.4 Benefits and Risk Mitigation of Guarantor Financing
	12.6 Financial Hedging
		12.6.1 Swap
		12.6.2 Overnight Index Swap
		12.6.3 Forward
		12.6.4 Future
		12.6.5 Option
	12.7 Operational Hedging
		12.7.1 Sourcing Hedging
		12.7.2 Inventory Hedging
		12.7.3 Production Hedging
	12.8 Regulations, Ethics, and Sustainability
		12.8.1 Regulations
		12.8.2 Ethics and Sustainability
	12.9 Summary
	12.10 Exercises
		12.10.1 Practice Questions
		12.10.2 Case Studies
	Appendix: Academic Perspective
	References
Part IVSupply Chain Finance Technology
13 Digitalization and Technology
	13.1 Introduction
	13.2 Supply Chain Digitalization
		13.2.1 5C Advantages and TIGER Challenges
		13.2.2 A Conceptual Framework
		13.2.3 Goals of Supply Chain Digitalization
	13.3 Supply Chain Finance Platforms
		13.3.1 Bank-Led Platform
		13.3.2 Buyer-Led Platform
		13.3.3 Manufacturer-Led Platform
		13.3.4 3PL-Led Platform
		13.3.5 Other Third-Party-Led Platforms
	13.4 Other Supply Chain Finance Technologies
		13.4.1 Internet of Things
		13.4.2 Artificial Intelligence and Machine Learning
		13.4.3 Robotic Process Automation
		13.4.4 Cloud Computing
		13.4.5 Big Data Analytics
	13.5 Summary
	13.6 Exercises
		13.6.1 Practice Questions
		13.6.2 Case Study
	References
14 Blockchain Technology
	14.1 Introduction
	14.2 Blockchain Structures
	14.3 The Bitcoin Blockchain
		14.3.1 The Bitcoin Blockchain Structure
		14.3.2 Transactions, Cryptography, and Crypto Wallet
		14.3.3 Blocks
		14.3.4 Hash
		14.3.5 Why Mining?
		14.3.6 The Consensus Mechanism: Proof of Work
		14.3.7 Blockchain Forks
		14.3.8 Pros and Cons of Bitcoin Blockchain
	14.4 Other Public Blockchains and Cryptocurrencies
		14.4.1 Altcoins
		14.4.2 Ether (ETH) and Ethereum
		14.4.3 HBAR and Hedera
		14.4.4 Litecoin
		14.4.5 Stablecoins
		14.4.6 Other Coins and Top Performers
	14.5 Risks and Future of Cryptocurrencies
		14.5.1 CeFi vs. DeFi
		14.5.2 Volatility of Cryptocurrencies
		14.5.3 Collapses of Crypto Marketplaces in 2022
		14.5.4 Future of Cryptocurrencies
	14.6 Private Blockchains
	14.7 Consortium Blockchains
		14.7.1 Pros and Cons of Consortium Blockchains
		14.7.2 Consortium Blockchain Implementations
	14.8 Hybrid Blockchains
	14.9 Summary
	14.10 Exercises
		14.10.1 Practice Questions
		14.10.2 Case Studies
	Appendix: Consensus Mechanisms
	References
15 Blockchains for Supply Chain Finance
	15.1 Introduction
	15.2 Blockchains in Supply Chain Management and Finance
		15.2.1 Supply Chain Visibility
		15.2.2 Know-Your-Customer
		15.2.3 Accounting and Auditing
		15.2.4 Smart Contract
	15.3 Digital Tokens
		15.3.1 Native Token
		15.3.2 Asset-Backed Token
		15.3.3 Non-Fungible Token
		15.3.4 Utility Tokens
	15.4 Initial Coin Offering
		15.4.1 ICO Structures and White Paper
		15.4.2 Pros and Cons of ICOs
		15.4.3 Other Variants
	15.5 Challenges in Blockchain Supply Chains
		15.5.1 Management Challenges
		15.5.2 Technology Challenges
		15.5.3 Human Errors
		15.5.4 Implementation Costs and Scaling
		15.5.5 Counterfeit Prevention
		15.5.6 Antitrust
		15.5.7 Regulation Compliance
	15.6 Applications of Blockchain in Supply Chain Finance
		15.6.1 Case Studies: Application of Blockchain in Logistics
		15.6.2 Machine-as-a-Service
	15.7 Summary
	15.8 Exercises
		15.8.1 Practice Questions
		15.8.2 Case Studies
	References
Index