One of the first things the government seems to have accepted is that, at least in part, the answer to the problem of SME access to better channels of credit is going to have to come from somewhere other than just tapping the big banks as in the past.
from the November 8th, 2010 article Supply chain finance – the answer to SME’s credit woes? by Robin Bowman, Senior Business Editor on the Premierline Direct business insurance website
In a recent interview with expert author Mark Amtower, whose new book Selling To The Government is being featured throughout the month of February on the PI Window on Business Blog, I continue to be amazed by the data from a recent AMEX Study which found that on average it takes 19 1/2 months from the time a small or even larger supplier begins their efforts to win a contract to actually generating revenue. During this interim period the average annual cost that a vendor usually pays (although not all out of pocket) is $89,000.
Similar sentiments were of course expressed by another Government Biz expert Judy Bradt, who during our popular 7-Part Series Seven Steps to Success: Jump Start Government Contracts, emphasized on more than one occasion the importance of having a good friend in your banker if you make the decision to reach for the brass ring that is government business. Judy it should be noted, who recently won honorable mention by Enterprising Women Magazine for her work in the area of advising government suppliers, also has a new book out titled Government Contracts Made Easier.
In short, it takes money and resources to play in the public sector space . . . money and resources I might add, that the majority of suppliers do not necessarily have readily available – especially during a down economy.
While we will leave the discussion surrounding the merits of governments taking proactive action such as financing their supply base as a means to offset the costs of pursuit referenced in the AMEX study (and possibly reverse the steady decline in supplier response to government tenders) for another day, the concept of helping to finance one’s supply chain is what makes the Bowman article so interesting.
However, and this is a BIG however . . . how do government entities and in particular those at the state and municipal levels provide financing support to as Bowman writes “plug the funding gap of their suppliers?” when they themselves in many instances, are teetering precariously on the precipice of financial collapse?
You simply have to refer to our extensive coverage of the budgetary shortfalls that have led a growing number of states and municipalities such as Detroit, to seriously consider bankruptcy – something that hasn’t happened to the degree many experts are predicting since the Great Depression in the 1930s.
Even if the bankruptcy card isn’t played, the seriousness of the situation has led some governments to take drastic measures such as when New York State recently took over the books so to speak, for Nassau County.
I mean it’s fine for an elected government official such as Mark Prisk – who was appointed as minister for Business and Enterprise in May 2010, in the Department of Business, Innovation and Skills in the UK – to say, “Supply chain finance is clearly an option that all large corporates should consider providing.” But, with an increasing number of governments recognizing the fact that by stimulating supplier participation (especially within the Small-Medium Enterprise community) they will also help to stimulate sagging economies, means that a do as I say and not as I do championing of the supply chain finance idea carries little if any significant meaning.
I am not suggesting here that private enterprises, as well as their suppliers cannot benefit from a supply chain financing strategy, as they most certainly can and in fact already do in the majority of circumstances. What I am saying within the context of this post’s focus on the public sector is that Government as Mark Amtower puts it, represents the world’s largest market. Given the convergence of other critical elements such as driving economic engines and stimulating innovation, the industry that should be at the head of the line in terms of leveraging supply chain finance should be the public sector.
This of course brings us right back to the main question . . . if governments cannot facilitate favorable lending conditions for themselves, how will they be able to do it for their suppliers?
Now many out there may believe that government finances and more importantly, the source of their funding through taxation, means that running out of money isn’t likely. While I would once again direct you to our previous posts such as Government fiscal policies show telltale signs of subprime 2008 meltdown, to gain a true appreciation of just how shallow government coffers have become, the fact remains that with diminishing revenues and increasing debt load (especially taking into account off the book liabilities), a good percentage of states and municipalities probably could use an alternative source of funding themselves.
In Part 2 of this series on Supply Chain Finance, we will examine the means by which governments could help to offset the costs for suppliers in terms of doing business in the public sector.
We will then examine the challenges associated with managing supplier relationships under a supply chain financing model in Part 3.