Managing the Innovation Adoption of Supply Chain Finance—Empirical Evidence From Six European Case Studies

• DOI: http://doi.org/10.1111/jbl.12016
• Author: Michael Henke,Constantin Blome,Kai Foerstl,David A. Wuttke
• Date: 01 June 2013
• Published date: 01 June 2013

Managing the Innovation Adoption of Supply Chain

Finance—Empirical Evidence From Six European Case Studies

David A. Wuttke

1

, Constantin Blome

2

, Kai Foerstl

1

, and Michael Henke

1

1

EBS University of Business and Law

2

Universit

e catholique de Louvain (UCL)

Logistics’contribution to corporate performance has increased over recent years, particularly due to supply chain innovations. Opposed to

common innovations focusing on the improvement of product or information flow, supply chain finance (SCF) targets the financial flow

and allows buying firms and their suppliers to improve working capital and reduce costs. However, the adoption process of SCF is complex

and rather unexplored in academia. This article provides an early step in building knowledge about SCF and in particular how firms adopt SCF,

why they adopt differently, and what role suppliers play in the adoption process. The objective was therefore to close the gap between our

knowledge on product and information flow oriented innovations and financial flow innovations along the supply chain, namely SCF. For this

explorative research, we opted for an inductive multiple case study approach with six European firms. Based on our findings, four sets of propo-

sitions are posited and an extended SCF adoption framework is proposed revolving around the interrelated adoption processes of buying firms

and their corresponding supplier bases.

Keywords: supply chain finance; innovation adoption; upstream innovation; case studies

INTRODUCTION

It is widely acknowledged that superior logistics management is

a crucial driver of firm performance (Ellram 1991; Bowersox and

Closs 1996; Mentzer et al. 2004; Fugate et al. 2010). Several

innovations such as bar codes, radio frequency identification,

cross-docking, and just-in-time delivery helped to grow the stra-

tegic impact of logistics management. Each of these innovations

supported specificfirms to outcompete competitors, with promi-

nent examples such as Walmart, Zara, Amazon, Toyota, and Dell

(Chopra and Meindl 2012). The scope was traditionally limited

to managing physical inventory and information flows, whereas

paying less attention to innovations in the third logistical flow,

the financial flow of supply chains.

Lately, we have seen several firms tapping into the field of

supply chain finance (SCF) as practitioner reports show (Aber-

deen Group 2006, 2007; Demica 2007). In such reports, it is

claimed that even one of seven firms actively uses SCF (Aber-

deen Group 2007), as the need to harmonize financial and physi-

cal flows in European supply chains has been substantial, even

already before the financial crisis (Castill

on and Petit 2008). SCF

provides a pathway not only out of short-term liquidity dilemmas

but also toward a reduction in the long-term financial burden in

the supply chain represented, for example, by the total amount of

necessary liquidity in a supply chain. The necessary liquidity is

lower with a coordinated financial flow across the supply chain

than in the uncoordinated case (Protopappa-Sieke and Seifert

2010), especially leading to high savings when buyers and sup-

pliers have different credit ratings (Pfohl and Gomm 2009).

Only recently, scholars also started to emphasize the impor-

tance of managing financial flows along supply chains (Bower-

sox and Closs 1996; Mentzer et al. 2001; Hofmann and Kotzab

2010; Gupta and Dutta 2011) and to address research topics with

adjacent focus, for example, Protopappa-Sieke and Seifert (2010)

on the interrelation of operational and financial performance

measures in inventory control. Likewise, Hofmann (2009) studies

inventory financing from a logistics service provider perspective

and Pfohl and Gomm (2009) and Gomm (2010) review and con-

ceptualize different approaches of financing supply chains. A con-

ceptual approach is also provided by Hofmann and Kotzab

(2010) who study collaborative working capital management and

particularly cash management in supply chains. However, empiri-

cal knowledge about this new phenomenon of SCF is nascent,

which can be explained by the mere fact that the SCF innovation

only recently emerged and empirical research can only analyze

existing practices and phenomena.

In practice, the innovation of SCF is considered to be an

established structure founded on an agreement between a buying

firm with its bank, stating that any supplier whose invoice has

been released by this buying firm can obtain a credit from the

bank for the period of the payment terms against the buying

firm’s credit rating (e.g., Demica 2007). This process is often

automated through an electronic platform providing all involved

parties with real-time visibility into the relevant financial transac-

tions. Particularly in Europe, SCF offers some innovative aspects

opposed to related practices such as reverse factoring, which are

intensively used in emerging economies (Klapper 2006).

Figure 1 illustrates the differences of a transaction without and

a transaction including SCF indicating also the novelty of the

process. This figure depicts the basic mechanism of SCF as we

analyze it in this article. As we shall discuss in more detail along

the case analyses, there are some differences among buying firms

regarding the SCF implementation. For instance, buying firms

may prioritize cash flows over automatization by focusing rather

on the extension of payment terms. Another firm might prioritize

the provision of flexibility to its suppliers and provide them with

Corresponding author:

David A. Wuttke, Institute for Supply Chain Management, Procure-

ment and Logistics (ISCM), EBS University of Business and Law,

EBS Business School, Konrad-Adenauer-Ring 15, Wiesbaden

65187, Germany; E-mail: David.Wuttke@ebs.edu

Journal of Business Logistics, 2013, 34(2): 148–166

© Council of Supply Chain Management Professionals

more transparency concerning the attainable short-term credit

lines also allowing them to lend only fractions of the outstanding

invoice volume. These differences are often manifested through

the implementation of SCF; for instance, a buying firm might

integrate the SCF platform into its enterprise resource planning

(ERP) system or rather use a bank’s website for each transaction.

To be clear, although scholars conceptualize further aspects of

SCF (e.g., Pfohl and Gomm 2009; Hofmann and Kotzab 2010),

we focus on this specific type of SCF implementation as this is

the most prevalent approach in practice. This enables us also to

limit the domain of our research in such a way that the units of

analysis are comparable. In the closing section of this article, we

suggest how the findings of this specific approach are connected

to different ways of managing financial flows along the supply

chain.

The numerical example in Figure 1 illustrates the available

benefits to both parties. In this case with an interest rate spread

of 5.5% between the supplier and the buyer, SCF can reduce the

capital costs for the supplier by 25% and lead to an additional

saving of 50% in respective capital on the buyer side. Pfohl and

Gomm (2009) come to similar conclusions in their conceptual

work, but with a stronger focus on the risk reduction mecha-

nisms available from adopting SCF in a broader sense. It can

thus be concluded that the financial benefits available from SCF

motivate its spread even though its adoption and implementation

is complex and organizationally challenging (Seifert 2010).

Besides these valuable insights into the mechanics and advan-

tages of SCF as well as adjacent practices, it appears that litera-

ture has so far overlooked the organizational perspective of

implementing SCF, in particular, the SCF innovation adoption

process. Even though new concepts do not as such automatically

qualify as innovation, it can be concluded from extant innovation

research that the concept of newness is considered the common

denominator of the wide array of definitions available for the

term “innovation”provided in the scholarly community. Thus,

we define innovation as “any idea, practice, or material artifact

perceived to be new by the relevant unit of adoption”(Zaltman

et al. 1973, 8).

In the domain of innovation management, it is common to dis-

tinguish between product and process innovations (Johannessen

et al. 2001). As SCF is a new way of organizing the financial

flows along the supply chain that does not affect the tangible

product among supply chain partners as such, it qualifies as pro-

cess innovation. Moreover, SCF has a significant effect on the

unit of adoption, namely the buying firms and their suppliers, as

SCF processes undergo a considerable adjustment during the

innovation adoption process; therefore, the buying firm becomes

the level of analysis in our study.

Furthermore, SCF reveals a unique upstream dissemination

challenge toward suppliers as opposed to the landmark supply

chain innovation literature typically focusing downstream innova-

tions toward (end-) customers (e.g., Flint et al. 2008). The main

difference lies between a buying firm that markets an innovation

to its suppliers and one that markets an innovation to its custom-

ers, as we will discuss in detail in the conceptual framework.

Thus, an upstream focus seems inevitable to understand the SCF

adoption process from an innovation perspective. Hence, in this

research we seek to contribute to the hitherto limited insights on

the coordinated management of financial flows in the field of

logistics and on the implementation of SCF from an upstream

buying firm perspective in particular, and to upstream innovation

literature in general.

For academia and practice, the adoption of financial logistics

innovations is new. Therefore, we use an explorative multiple

case study approach to build knowledge on how firms manage

the SCF adoption process. This approach allows us to gain multi-

Figure 1: Supply chain finance (SCF) mechanism contrasting (A) transaction without SCF and (B) with SCF. Numbers are an illustra-

tive example.

Managing the Innovation Adoption of SCF 149