Predicting supply chain effectiveness through supply chain finance

Abstract

Purpose Due to globalization, textile small and medium enterprises (SMEs) operations have become complex which raised the needs of risk-free financing solutions to support the SMEs’ daily processes. The purpose of this paper is to investigate the effect of supply chain (SC) finance, a risk-free financing solution, on SC effectiveness (SCE) in the context of textile SMEs by employing transaction cost (TC) approach. Design/methodology/approach The participants of the study were recruited from textile SMEs through a structured questionnaire. The proposed model and structural relationships were assessed by employing AMOS 24.0. Findings The results of this paper indicate that supply chain finance (SCF) has a significant effect on SCE. Furthermore, all proposed factors of SCF adoption have a positive and significant effect on SCF. Practical implications This study helps the SMEs executives or owners to adopt SCF as a secure financing scheme to reduce the credit TCs, optimize the firm working capital, reduce the risk of default, and improve SC effectiveness. SMEs and suppliers can build strong relationships while adopting the findings of this study. SMEs can engage the suppliers to work under strategic alliance through negotiation, collaboration, and work digitization, and extend their payment terms while providing an opportunity to the suppliers to get their payment back before a fixed time through discounting from financial institutions as needed. Originality/value The present study covered the gap related to SCF and SCE by identifying unique factors of SCF adoption which was ignored in the previous literature by employing TC approach.

The impact of supply chain finance on firm cash holdings: Evidence from China

“…Column (7) shows the significant and negative relation between SCF and CCC , suggesting that SCF shortens the cash turnover period by around 145 days. Our finding, that SCF significantly improves capital efficiency, is in conformity with that by Lamoureux and Evans (2011) and Ali et al (2019) . Given the outstanding financial constraints among SMEs and private firms in China ( Xu et al, 2015 ; He et al, 2019 ), such a contribution by SCF may fundamentally change the firm's competitive position in the market.…”

“…Since the Global Financial Crisis (GFC) in 2008, supply chain finance (SCF) has emerged as an efficient means of short-term financing to alleviate a firm's financial constraint ( Nienhuis et al, 2013 ; Ali et al, 2019 ; Jia et al, 2020 ). Often with better access to bank loans and enjoying more commercial credit, a core firm in SCF can share its financial resources with other firms in the supply chain or provide guarantees to facilitate small and medium-sized enterprises (SMEs) to borrow bank loans.…”

“…In addition, SCF may effectively improve capital efficiency during times of a credit crunch ( Polak et al, 2012 ). Through reduced transaction cost and default risks, SCF may optimise efficiency of the supply chain, where SMEs play important roles ( Ali et al, 2019 ). In comparison, the supply chain strain focuses on the optimisation of the ecosystem ( Gomm, 2010 ; Wuttke et al, 2013b ).…”

Financial supply chain, inventory management and supply chain efficiency: An empirical insight from Kuwait

“…Value of SC reflects through the processing of business transactions, getting low cost debt facilities and better collaboration for new opportunities in the market place (Ascari, 2015;Bellusci & Beretta, 2016). In addition, financing activities in supply chain increase the level of commitments, and financial rewards for all the parties who are associated to each other (Ali et al, 2018). In their work, Cooper and Ellram (1993) expressed that a close relationship with the SC role players results in better outcome over longer time.…”

“…These factors are transportation cost, necessary for the delivery of products; cost of warehousing of products; overall cost associated with inventory; logistic & administration cost; cost of products; and cost of the delivery of products to customers at right time and in right quantity. These six dimensions are widely accepted in the field of business and supply chain (Ali et al, 2018). The present study considers all these items to reflect supply chain efficiency.…”