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As global trade faces ongoing disruption from high inflation, rising interest rates and lingering supply chain bottlenecks, the importance of effective working capital management has never been greater.

With targeted support for suppliers who are most vulnerable to liquidity shortfalls caused by delays, cost increases or fluctuating demand, supply chain finance has become a vital tool for corporates –but a lack of alignment between the treasury and procurement functions risks holding back its full potential.

In this Industry Perspective, J.P. Morgan’s global head of trade sales Natasha Condon and Matthew Taylor, global head of procurement, discuss how a more collaborative approach can unlock the maximum benefits of working capital solutions.

With treasury and procurement jointly setting goals from the start and considering the end-to-end supplier perspective, corporates and their banking partners can co-create integrated solutions that incentivise partners along the chain to drive efficiencies, boost resilience and make progress on sustainability, all while easing critical liquidity pressures in challenging times.

Q: How has procurement’s role changed in the last few years, and what are the main challenges procurement decision makers face today?

Taylor: There’s a universal clamour for more business to flow through procurement. However, this demand often isn’t matched with an increase in technology or resource funding. The challenge lies in pushing forward initiatives such as diversity and inclusion, enhancing the internal customer experience, and accelerating speed to market, all without significant new investments.

To address these challenges, procurement departments are increasingly tasked with adopting a self-funding model. This includes monetising payables to unlock capital as well as managing costs more effectively within procurement’s scope to create financial breathing space.

Condon: Recently, there’s been a noticeable expansion in the roles and responsibilities of treasury and procurement, especially as ESG targets trickle down from the C-suite to all corners of financial and operational leadership.

Resilience has become a fundamental aspect of procurement strategy, especially in light of the unprecedented supply chain disruptions we’ve experienced. The aim now for corporates is to become the customer of choice, and this as a concept has gained traction because of the competitive edge it can provide during times of scarcity – whether we’re talking high-tech components or basic commodities.

We’re not out of the woods yet with supply chain challenges. We’re still seeing fluctuations in inventory levels and a dip in global merchandise trade, suggesting a subdued outlook for the year ahead. High interest rates compound these issues, heavily impacting financing costs for small suppliers. Procurement’s role has thus expanded to ensure not only their own company’s advantage but also the survival and health of their suppliers.

Q: In recent years, how has the conversation around working capital shifted in terms of decision-making, and why has the procurement function emerged as a crucial player in this area?

Taylor: Traditionally, procurement has been narrowly perceived as a function that’s engaged primarily for price negotiation. This is a misconception. Procurement is intrinsically about adding value through third-party relationships – whether that’s managing costs, enhancing performance or mitigating risks. The way value is defined within procurement is evolving and varies depending on whether you’re interacting with suppliers or internal stakeholders.

Monetising payables and utilising supply chain financing are strategies that cut across cost, performance and risk management. They require a bilateral dialogue with suppliers to explore how to enhance the relationship, making it mutually beneficial and more cost-efficient. It’s about opening a channel of communication that goes both ways, which can sometimes be a challenge because the tendency has been to have one-directional conversations.

Condon: Supply chain finance fundamentally exists to benefit the supplier with earlier payments at better rates than traditional banking channels. The relationship with the supplier, and hence the dialogue around their needs, firmly belongs in procurement’s hands.

Many times throughout my career, I have gone in to meet a sophisticated multinational’s treasury team to discuss all the wonderful working capital tools we have available. The heart-sink moment comes when we enquire about procurement’s involvement. The response – that procurement will be looped in later – is a tell-tale sign that the programme may stumble or, at the very least, not achieve optimal ease or efficacy.

A successful programme, in my experience, is one where treasury and procurement collaborate from the get-go. When a bank is brought to the table, these two departments should already have a united vision and strategy.

Q: Sustainability-linked supply chain finance programmes are increasingly seen as a means by which corporates can achieve ESG goals. How can close collaboration between procurement and treasury help maximise their impact?

Condon: Supply chain finance is a brilliant tool to incentivise positive behaviours in areas like reducing scope 3 emissions. We’ve delivered a number of successful ESG-linked programmes. Tyre manufacturer Bridgestone, for example, collaborated with rating agency EcoVadis to encourage suppliers to improve their sustainability scores, offering cheaper financing rates as a reward for improvement.

The suppliers needed to sign up with EcoVadis and provide the necessary information to obtain a score. Many small companies don’t have the resources, time or knowledge to dedicate to this task, so within the programme we incorporated a system whereby simply obtaining a score from EcoVadis qualified them for cheaper financing. There is then an ongoing tiered pricing table where they have to keep improving their score in order to benefit from higher price discounts.

This has generally been incredibly popular with the supplier base, because it is an acknowledgement that signing up with a rating agency and providing this data involves cost and effort, and this is being compensated.

This is where procurement’s role becomes critical. They understand the supplier’s pain points and the practicality of these initiatives because they interact with them daily. They can identify which suppliers need more support, as well as what would be the most appropriate immediate and practical benefits to include in a programme.

Q: What are some common reasons supply chain finance programmes fail, and how important is procurement’s role in ensuring their success?

Condon: The pivotal reason supply chain finance programmes don’t succeed is often tied to procurement not being fully engaged. When procurement is not on board, it typically signals that the programme wasn’t sufficiently tailored to meet its needs or those of the suppliers from the outset. Misalignment within the organisation can be one of the stumbling blocks, such as when treasury’s objectives – like ESG goals or working capital improvements – don’t mesh with those of procurement, where category managers might still be incentivised primarily on cost savings.

We’ve observed this issue on multiple occasions, and although these initial missteps can obviously be rectified by the leaders within these organisations, they do set back the programme’s initial launch, and this is an entirely avoidable complication.

Q: Can you describe your approach to engaging all relevant parties from the start of a client engagement? What should corporates understand about this process?

Condon: Our approach centres on understanding the client’s definition of success from the onset, which is critical to tailor the right solution. This metric of success needs to be a collaborative goal set between treasury and procurement, because although it’s beneficial to start the conversation with treasury to understand how our tools can help, the dialogue deepens when procurement joins. Their perspective is different; they can give a detailed view of the pressures different sectors face or the nuances of various geographies – and we can also utilise our own extensive data to inform and support these discussions. So, fundamentally, we advocate for including procurement early on to align goals and facilitate informed decision-making.

Taylor: When we talk to clients about supply chain financing, we don’t just present a product; we showcase our own procurement team’s experience with these tools, how they’ve been integrated into daily operations, and the tangible benefits realised.

Integration is essential. A financial tool’s worth is determined by how well it can be integrated and maximised within business operations. Having a team with prior experience, who understands the trade-offs and potential pitfalls, adds significant value.

When we talk about procurement, we’re encompassing the entire source-to-pay spectrum. Historically, even within our bank, we’ve seen how increased alignment between procurement and treasury can bolster the execution of payment discounts or supply chain financing solutions. By considering procurement in the broader context of source-to-pay, we ensure the process is agile and flexible enough to implement the strategies we want to put in place. If we can’t operationalise them effectively, they won’t deliver the intended benefits.