April 22, 2021 | 01 min read
What blood is to a human body, money is to a business. It keeps it going. But unlike a human, a business is co-dependent on its stakeholders to ensure that the blood of the business keeps flowing. This is especially true in the context of the CPG industry which thrives on the frictionless movement of the supply chain and where the profitability of the business depends a lot on the distribution network and the buying capacity of the members of the network, which gives scope to the concept of supply chain finance.
Let’s take an example. A brand launches a new product in the Indian market and begins supplying it through its sales channels all across the country. But due to a pandemic in the region, the distributors and retailers up North have not been able to open shop for days and refuse to accept stocks as the business is down. Now, even if the salesperson makes the buyer understand the demand and scope for the product, the current situation might compel them to not buy the product.
Again, for instance, if any member in the sales channel has a cash crunch and fails to settle dues, it can create a working capital shortage. Let’s use the same example. The brand’s new products are supposed to be launched in the biggest retail chains in North India. But due to the pandemic, the vendors lost access to transportation and hence cannot carry on their business. Without adequate working capital, they cannot look for alternatives like investing in vehicles to combat disruption of their distribution processes.
Here, the lack of working capital can cause huge monetary losses for the company. In the CPG ecosystem, all the members of the supply chain contribute to each other’s working capital. If the vendor can’t take the product to the market, the distributor would face a loss even if they invest in the product. If the distributor cannot buy SKUs due to insufficient funds, the vendors would never get the scope to take the product to market.
In both cases, the shortage of funds at a particular node in the supply chain results in overall friction and may impact a manufacturer’s profitability. Hence the inflow of cash when necessary can curb these mishappenings.
But is that it? No. Let’s think big! What could we do if we had more blood? Donate to someone who needs it. That’s exactly how financing the supply chain can benefit a business. With more cash in hand, members of the sales channel can invest in experimenting with slow-moving SKUs or maybe stock in more of the high-moving ones.
To curb these problems in the supply chain, businesses opt for unsecured loans which focus on a person’s creditworthiness instead of collateral guarantees. This cash buffer helps members of the supply chain meet their daily expenses without any worry and helps them focus on work. Because if a person has to choose between caring for their families during a pandemic and buying a vehicle to supply goods, they would choose the former.
While working with leading brands and their network of distributors and retailers, we realise the potential of this monetary motivational hack and the impact it can have on the sales and success of a business at large.
Bizom has partnered with recognized fintech firms to bring supply chain finance to the fingertips of our FMCG clients. By digitizing the supply chain credit system, any channel partner can take credit at a click of a button using the Bizom app.
Write to us at email@example.com for more info on how supply chain finance can benefit your suppliers, distributors, stockists and retailers network.