New challenges arise in line with changing customer expectations. How…
How to support your company’s ecosystem in times of crisis as well as during strong growth cycles?
Disclaimer : Please note that the interview is based on the expert’s own experience and view and does not engage one of Santander CIB under any circumstances.
Why are strong partnerships critical to ensure a reliable supply chain, and how to create one?
Strong partnerships are indeed crucial for maintaining a reliable supply chain. In times of crisis as well as during strong growth cycles, they are the ones that support the entire company’s ecosystem and help either by absorbing the shocks or by exploiting the opportunities. In order to build them, several key steps are required. It starts with clearly defining expectations: companies begin by establishing clear objectives for both parties. Aligning goals, performance metrics, and service levels is essential. It continues with open ongoing communication: regularly sharing of information, feedback, and insights helps maintain transparency and address any challenges promptly. Last but not least mutual benefits and fairness, which is the core essence of partnerships. Seek opportunities for win-win situations where both parties can thrive. This can include exploring cost-saving initiatives, joint investments, or seeking the optimal financing structure across the whole upstream and downstream supply chain. As a large global bank that connects many buyers with many suppliers, Santander Corporate & Investment Banking (Santander CIB) focuses on this last aspect and develops programs that help parties on both sides take costs and risks out of their value chain. Inventory Finance, Supply Chain Finance, Pre-delivery Finance are all examples of this kind of solutions.
Take Inventory Finance, for instance: for many years large manufacturers have asked their suppliers to carry their inventory of components as long as possible through consignment agreements. In the new environment of high-interest rates, suppliers with weak credit quality have suddenly found themselves facing prohibitive costs. If a bank like Santander CIB finds a way to pay the supplier right after the production, warehouse the inventory through an intermediary and charge the related financial costs based on the stronger credit quality of the buyer, it is a win for everyone.
Why do agility and adaptation skills in procurement become so important when it comes to managing third-party spend?
Agility and adaptation skills have gained significance in procurement due to the evolving nature of business environments. Markets are subject to constant change, influenced by factors such as economic shifts, technological advancements, and geopolitical events. Procurement professionals must be agile to respond quickly to market fluctuations, such as price fluctuations, demand changes, or supply disruptions. The supplier landscape is also becoming increasingly diverse, with new suppliers and technologies emerging regularly. Procurement professionals also need to adapt their strategies to leverage on the opportunities presented by new technologies. Embracing digital tools and innovations to streamline processes and gain real-time insights also belongs to the agility concept. Here banks are also well-positioned to support, because their large pool of transactional data has pushed them to develop useful tool to monitor key trigger points of the supply chain and release financing at the right moment. For example, a few years ago it would be unthinkable to have large-scale programs whereby the same bank could finance hundreds of suppliers at Purchase Order level, even before goods had been produced. Now the power of data allows a tech-savvy bank like Santander CIB to evaluate diversified vendor portfolios and approve large PO-finance facilities for them. The data are constantly updated and the key economic parameters for the financing can be adapted to follow the actual risk profile of each sector.
How to successfully source diverse suppliers?
This is a common challenge for most procurement organizations and gained a lot of priority with the new trends towards near-shoring or friends-shoring of production. The first action is probably about expanding the search channels: industry-specific directories, trade shows, and professional networks and even social media are all useful told used for this purpose. The old discipline of supplier scouting is also an evergreen method, and it can be now enriched by offering supplier development programs, especially around the trending topic of sustainability and ESG compliance. For Santander CIB, every new supplier-buyer relationship is the chance to deliver value. With every new relationship there is the need to renegotiate trade finance agreements, cover new performance or payment risks, export best practices from one company to the other. Not to mention the requirement to assess and constantly monitor the performance of new supplier on all ESG metrics that are relevant and material for the buying organization, with a view of improving the company’s scope 3 emissions. In this respect, also Supply Chain Finance programs can be linked to sustainability metrics and contribute a great deal to collect more data and eventually improve the ESG scoring of both old and new suppliers. Santander did it with large procurement entities like Tesco in the UK and a large utility in Spain, creating a lot of positive momentum for their scope 3 ESG initiatives.
Eugenio Cavenaghi is leading the Working Capital Advisory and Structure Trade practice for Santander CIB in Europe. Before joining banking, he held positions in Global Procurement for Chicco-Artsana in Italy and for Procter&Gamble in Germany. He has a wide project experience covering mainly the logistics and financial aspects of the supply chain.
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