Transforming the Foundation of Supply Chain Finance: The Impacts of Blockchain Technologies on the Evolution of the Supply Chain Finance Ecosystem

Aske Bue Bjørner & Victor Robert Elund Piccirillo

Student thesis: Master thesis

Abstract

As industrial supply chains are now spanning more countries than ever and reaching mind-boggling levels of complexity, physical supply chains are becoming increasingly efficient at delivering and streamlining value chains to secure a continuous flow of goods. However, financial and information flows within those same supply chains are often still fragmented. This has been particularly exemplified by a trend in the decade since the financial crisis for large buyers to pursue aggressive cash management strategies at the expense of their suppliers.
The recent interest in supply chain finance has in large part grown from an attempt to balance the increasing liquidity concerns and mounting pressures to optimize working capital among companies with a more sustainable approach to financial management in the supply chain. In this context, by building on the advantages of technological platforms and innovations, Supply Chain Finance (SCF) is able to offer a win-win financing alternative for suppliers and buyers, by exploiting the arbitrage opportunities in the difference between their credit ratings.
However, the growth of the SCF ecosystem has been impeded in large part, due to the high level of trust required between the supplier and the buyer to make SCF instruments function, and due to associated legal, cross-border issues and the difficulty to on-board suppliers to SCF programme.
As the quality of the information flows between participants are a determining factor for the success of a SCF programme, Blockchain technology has the potential to fundamentally alter the buyer-supplier relationship in an SCF ecosystem by facilitating trust.
Drawing on the concepts of business ecosystems, diffusion of innovations, and trust and risk, this paper attempts to examine and understand the underlying dynamics of the evolution of the SCF ecosystem with the introduction of blockchain technology innovation. As the blockchain technology is able to inject the needed degree of trust and standardization in the SCF ecosystem for it to expand in scope and scale, the maturity of the blockchain technology therefore influences the rate of adoption of SCF in organizations.
In addition, this thesis takes a particular interest in the relationship between large buyers and small suppliers and presents managerial implications for large buyers looking to develop a blockchain-enabled SCF solution to strengthen the financial strength of its smaller suppliers and ensure greater stability throughout its supply chain.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final ThesisMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2019
Number of pages143