NBK Group, together with one of its customers, Branda, a global wine and spirits wholesaler, has decided to take part in a pilot project to test the extent to which its service could be expanded further on the basis of Supply Chain Finance. The SMILE project is an initiative of Dinalog and Fluas and has been set up to provide accessible support to SMEs in the area of logistical innovation.
NBK Group offers a broad range of logistics services to its customers, including forwarding, warehousing, air and sea freight, road transport and value-added logistics. Acquiring an insight into the customer's actual needs and potential innovations is extremely important here. Healthy financial operations also form part of NBK Group's vision. NBK Group is therefore adopting an unusual position, not just within its sector, but also in relation to its customers. This focus on innovation and healthy financial management has resulted in the development of a highly innovative Supply Chain Finance concept.
Small-scale inventory financing
In itself inventory financing is extremely common. It is estimated to take place for around 5% of all global trade. Within this project, however, the inventory financing is set up by the service provider, without any intervention on the part of a bank. As NBK Group has good knowledge of its customers' products and market, is in a healthy financial position and can make use of its 'right of etention', it can implement inventory financing under favorable conditions. The scale on which it can do this is, generally speaking, too small for banks. This creates interesting opportunities for service providers, and in particular for customers.
"The trade in excise goods is becoming increasingly volatile", explains Julius Ledas, Branda's owner. "Sharp exchange rate fluctuations and bear and bull markets that are following each other in ever quicker succession are resulting in smaller shipments with a greater variety of products. That means you not only need liquidity to invest in the range of stocks you hold, but also to be able to capitalize on opportunities that arise in these kinds of markets. We see inventory financing as one of the tools that can help generate further growth. That's why we are participating in the pilot."
Aljosja Beije, co-founder of BeSCOPE Solutions: “Supply Chain Finance is a balancing act between the financial, information and physical flows within the supply chain. For a long time too little attention was paid to financial flows. The 2008-2009 crisis changed that significantly, however, prompting the development of Supply Chain Finance as a separate discipline. One development is following another at a rapid pace, to the point that there are already different versions of Supply Chain Finance. Supply Chain Finance 1.0, for example, still has a strong focus on reverse factoring, the smart use of differences in the cost of capital of various parties within the supply chain. Supply Chain Finance 2.0, on the other hand, focuses on integrating the financial, physical and information flows within the supply chain to fundamentally transform the supply chain and how it is managed."
"Our top-5 customers have been with us for many years and we want that to remain the case", says Bob de Winter Jr. of NBK Group. "Supply Chain Finance can help us to make our partnership with our customers even more sustainable." This is very much a necessity at a time when the trend is towards concluding shorter and shorter contracts and inviting tenders annually. In the view of Bob de Winter Jr. these are not positive developments: "A focus on the short term leads to mistrust and opportunism in the chain and ultimately only creates losers. It is therefore all about cooperation, not only between the service provider and customer, but also with banks."
Results of the pilot
The pilot has now gone live and as part of this project a small portion of Branda's stocks are being financed by NBK Group. Particular attention has been paid to the administrative structure, to ensure that all transactions are carefully documented. Aljosja Beije: "Wine and spirits are actually perfect products for stock financing". They have no best before date and remain marketable. These aspects, combined with Branda's reputation, meant that the measures required to control risks could be integrated relatively easily into the existing processes and systems within NBK Group. The operational impact was therefore minimal, especially as the input of the necessary information, such as the value of the goods and the physical inspection of the goods, forms part of the existing service.
On the other hand, there was a significant impact on administrative processes. "Inventory financing requires us to look at our financial exposure in a different way", explains Stefan Plaisier, CFO of NBK Group. "It is not just outstanding items that are important, but also, for example, the value of the goods present, any changes in their price and our work in progress, in the form of customer orders in various stages of completeness. Combining this information and being able to share it in real time demands a great deal from our processes and systems."
Now the pilot has gone live the most important result is that Branda now has more working capital at its disposal for trading. This is a result that should not be underestimated, according to Dick van Sprundel, International Tax Partner at Mazars Accountants en Belastingadviseurs. Mazars is involved in the SMILE project as a project partner. Within the organization a wealth of fiscal knowledge is available in the area of Supply Chain Finance. "This is a unique case for the Netherlands and one of the first of its kind in the world. In practice it would be difficult, if not impossible, for Branda to set up this form of inventory financing with a bank at a reasonable cost. Thanks to NBK Group's approach, combined with its retention right, an ingenious and innovative solution has been implemented. In my opinion it is also to be welcomed that a relatively simple administrative structure has been chosen, given that all kinds of fiscal and legal aspects can come into play."
"Inventory financing is by no means a magic formula for all our customers or for every logistics services provider," according to Bob de Winter Jr. "The overall picture has to be right: the customer's reputation, the type of product, processes, systems and the financial management of the customer and logistics services provider. The SMILE subsidy that supported the management of the project allowed us to make the extra push needed to fine-tune everything. In any case, this pilot has given us confidence to take the next step and develop this concept further."
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