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Monday, April 24, 2023

Change of the Buyer-Supplier Dynamic

Inflation changing things.   Implications?

How Economic Uncertainty Is Changing the Buyer-Supplier Dynamic

April 24, 2023Robert J. Bowman,  in SupplyChainBrain

The buyer-supplier relationship is in constant flux. Both sides are forced to pivot in response to changes in inflation, interest rates and the general economic climate. And the balance of power between the two shifts accordingly.

In recent years, buyers have, for the most part, been dictating terms. In an attempt to hold on to cash for as long as possible, they’ve progressively stretched out payments to suppliers, many of whom have struggled to stay solvent as a result. Now, however, there are signs that the advantage is beginning to swing back to suppliers, although they continue to be challenged by an uncertain economy.

Inflation is a concern for both sides, says Maureen Sullivan, head of supply chain finance with MUFG, the global bank with headquarters in Japan. There are currently two primary challenges that companies are facing as they struggle to achieve supply chain stability, she says: “access to goods and management of cost.” Both are tied directly to inflation, which leads to rising interest rates and, ultimately, higher prices.

As the Federal Reserve continues to notch up interest rates, buyers and suppliers cast about for ways to contain their financing costs. They’re turning to programs that take over the supplier’s receivables for early payment, while allowing the buyer to maintain longer terms.

Such financing programs are of particular value at times when banks are tightening up on lending. “They may make access to traditional types of financing more challenging for suppliers,” Sullivan says. “Financing programs provide an alternative source of liquidity.” At the same time, the supplier can obtain a financing rate based on the buyer’s credit profile, which tends to be more favorable.  .... '

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