Study of supply chain logistics financing models

Abstract

Small and medium enterprises (SMEs) are fundamental to Chinese economy. They account for over 99 percent of market share in China, offering over 80 percent of local job opportunities and providing more than 50% of national tax income. Despite their importance on economy, many SMEs, in particular those in logistics industry, fail to meet their financing needs. Unlike manufacturing companies who have ownership of the products and can use more diverse and valuable goods for pledge, logistics firms handle things that do not belong to them, and they could only use limited goods of limited value for pledge. As a result, SMEs often resort to private loans at undesirably high interest rates, which inevitably heighten default risks. Therefore, a solution is sorely needed in order to bail most SMEs out of their current financing difficulty. Supply Chain Logistics (SCL) Financing Model provides one such solution. In addition to solving the problem above, SCL Financing Model also provides financing services that benefit the interests of SMEs, banks and third-party logistics firms (3PL). By adopting SCL Financing Model, SMEs can use raw materials, work-in-process, finished goods and sound business credit as pledge to ask for financing services. Furthermore, this model can extend client range and provide financial innovation opportunities to banks, while broadening the service scope of 3PL.

Current journals study on the process that bank passing logistics firms credit audit functions and focusing only on SMEs’ comprehensive strength. However, few of them take consideration of the dynamic risk of supply chain logistics and the mediating function of logistics firm. This dissertation investigates the SCL Financing Model for SMEs and studies four scenarios, which are briefly illustrated below.

The first scenario overviews the characteristics of four main pledge models that widely used in China, which are inventory pledge, advanced-payment financing, receivable pledge financing and credit finanicng. Four well-known companies in supply chain logistics financing, such as UPS, Alipay, Group Z and COSCO, are studied based on their pledge models and positions in supply chain. After that, a perceptual map is built to evaluate China’s current condition in supply chain financing services and predict its future development direction.

The second scenario presents a flow-based credit evaluation model, which is designed for SMEs with limited pledged inventory and small cash flow. Distinguished from the traditional asset-based credit evaluation, this new model considers physical flow through the supply chain, as well as real-time trading information from information platform when operating and making financial decisions. In order to obtaining visible and trackable data, supportive technologies, such as RFID, are also implemented. The third scenario describes a current situation in China that banks and e-commerce companies compete over the privilege position of offering financing services for SMEs. Banks apply supply chain logistics financing model by setting up e-commerce platform, perfecting on-line payment system and extending payment channels. While e-commerce companies provide just-in-time solutions and financial assistants by evaluating the information of customers’ performance and monitoring their physical, capital and information flows.

The fourth scenario presents how supply chain logistics financing model works under the e-commerce environment based on the SWOT analysis. In order to share updated information between supply chain partners and implement pledge models, a warehouse data center is built based on the needs of banks, warehouse and SMEs.