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BPMJ
19,4
624
Received 14 September 2012
Revised 9 December 2012
Accepted 23 December 2012
Business Process Management
Journal
Vol. 19 No. 4, 2013
pp. 624-647
q Emerald Group Publishing Limited
1463-7154
DOI 10.1108/BPMJ-09-2012-0093
Challenges of supply chain
finance
A detailed study and a hierarchical model
based on the experiences of an Indian firm
Dileep More and Preetam Basu
Operations Management Group, Indian Institute of Management Calcutta,
Kolkata, India
Abstract
Purpose – The purpose of this paper is to examine the different challenges that confront supply
chain finance (SCF) and to develop a hierarchical model that analyzes the complex relationship
dynamics among them.
Design/methodology/approach – An extensive survey is carried out amongst Indian firms to
ascertain the perceptions and experiences related to different SCF challenges. After obtaining an
overview of the different SCF challenges, an Indian company with global operations was approached
and after establishing relationships among the challenges, a hierarchical relationship structure was
developed and MIMBI analysis (where MI ¼ measure of influencing; MBI ¼ measure of being
influenced) was carried out that helped understand the relationship dynamics of SCF challenges and
identify actions at both strategic and tactical levels.
Findings – The study reveals that lack of common vision among the supply chain (SC) partners is
the most critical challenge confronting SCF. Unpredictable cash-flows resulting from delays in
financial transactions, due to lack of automation in the payment processes, along with lack of
knowledge and training on SCF tools, also play significant roles. As organizations are tightly
integrated through their SC, they should initiate collaborative approaches across the SC to reduce the
total procure to payment cycle time and, in the process, improve overall financial stability of the SC.
Research limitations/implications – This study is based on the findings from the Indian
industry; future research may include a large-scale survey and case studies across organizations
located in different countries and operating under different environments.
Practical implications – Based on the study, firms can evaluate the dynamics of SCF challenges
and redefine SC relationships and strategies to achieve desired cash flow in the SC.
Originality/value – The academic literature on financial supply chains is very limited. This paper
appears to be the first formal attempt at analyzing the various challenges confronting SCF.
Keywords Supply chain management, Finance, Cash flow, India, Channel relationships,
Supply chain finance, Challenges, Interpretive structural modelling
Paper type Research paper
1. Introduction
Competitive pressure and globalized networks have resulted in complex and dynamic
supply chains (SCs) (Zhang et al., 2003; Christopher et al., 2006, Manuj and Mentzer, 2008;
Creazza et al., 2010). However, the focus of supply chain management (SCM) to date has
been on the design and optimization of the flows of goods and information (Lee et al.,
2000; Childerhouse and Towill, 2003; Disney and Towill, 2003; Bhatnagar and Teo,
2009). One aspect that has been often neglected and overlooked is the financial flows
along the SC which form an essential part of the continuum of the business operation
(Chen and Paulraj, 2004; Pfohl and Gomm, 2009; Randall and Farris II, 2009; More and Supply chain
Basu, 2011; Basu and Nair, 2012). finance
Closer relationships with partner companies and an integrated SC are accepted in
any enterprise as an effective way to cut costs and increase business agility, yet the
financial communications which form an essential component of intra-firm transactions
are often overlooked (Keebler, 2002; Avanzo et al., 2003). When it comes to their financial
operations, the buyer and the supplier perform roles that are in conflict. In a typical SC 625
scenario, the buyer’s primary motivation is to stretch payables and earn interest off the
float (Basu and Nair, 2008; Demica Report, 2008; Citi Webinar Report, 2008). This
tendency of the buyer improves its working capital position by increasing days payables
outstanding (DPO), but adversely affects the cash flows of its suppliers that leads to a
financially unstable supply base (Demica, 2007). Globalization and production
outsourcing also adds complexity by lengthening the SCs and further constraining the
working capital requirements of the SC partners (Hartley-Urquhart, 2006; Conroy, 2007;
Casterman, 2010; Maltz, 2012).
Driven by the pressing need to coordinate the financial SC, in the last few years SC
service providers and financial institutions have come up with many solutions to
release the trapped value in the financial flows of the SC that have provided better
visibility at different stages of the procure-to-pay and order-to-cash cycles. This has led
to the emerging field of supply chain finance (SCF) (Robinson, 2007; Aberdeen, 2006a;
Demica, 2007) which can be defined as “managing, planning and controlling all the
transaction activities and processes related to the flow of cash among SC stakeholders
in order to improve their working capital”.
Apart from the buyers and their suppliers, the SCF eco-system is composed of third
party SCF platform providers who team up with large financial institutions to meet the
capital requirements of the entire SC. SCF creates a financial win-win for the buyer, the
seller and the financial intermediary (Deloitte, 2009; Pricewaterhouse Coopers, 2009;
Hurtrez and Salvadori, 2010). While buyers enjoy extended payment terms and an
increasingly reliable supply base, suppliers gain access to lower cost of financing and
much more stable and predictable cash flows; financial intermediaries stand to
dramatically increase their involvement in global SCs by extending their reach to cover
their customers’ end-to-end SC (Fairchild, 2005; Knox, 2005; Glassanos, 2007).
Great opportunities lie ahead in managing the financial flows efficiently. However,
at present, the financial SC is in a critical phase of evolution facing various complex
and significant challenges. It is important to analyze and understand how the different
SCF challenges interact and gain an insight into their complex dynamics. In this paper, a
survey has been conducted amongst Indian organizations to learn about their perceptions
and experiences related to the different challenges that confront their financial SCs. After
identifying the SCF challenges in Indian environment, a well-known Indian firm has been
approached to ascertain the attitude and awareness about the challenges confronting its
SC. And, to understand and analyze the interactions and dynamics among the challenges
in the company’s SC, an interpretive structural modeling (ISM) has been developed.
Based on the analysis, the study discusses appropriate action plans, policies and
strategies for deploying SCF with the purpose of reducing vulnerability and risks
associated with the financial SCs.
The next section addresses various challenges that confront the SCF. Section 3 presents
a survey to get a first-hand view of the perception and belief about the importance of
BPMJ SCF challenges in the context of Indian organizations. Section 4 profiles an Indian
19,4 organization that has been facing SCF challenges. Section 5 states the methodology and
model development whereas managerial implications based on the survey and model
developed are presented in Section 6. The paper is concluded in Section 7 by highlighting
the salient points of the study, limitations and future scope of research in this evolving
field.
626
2. Challenges for improving SCF
In the supply chain, financing is made possible at different points of the SC based on
event triggers like purchase-order issuance, shipping notices and invoice approval as
shown in Figure 1. The spectrum of innovative SCF programs range from pre-shipment
financing like raw material financing, purchase-order financing, in-transit inventory
financing like vendor-managed inventory financing to post-shipment financing like
receivables financing and early-payment discount programs. The focus of these
solutions is to provide SC partners with more control over their financial processes and
more options to optimally use cash and credit.
Although SCF is presently at a developmental stage, the potential is immense.
Organizations are looking for ways and means to stay competitive with financial
stability across their SCs. However, there are many challenges that confront successful
implementation of SCF programs at both the organization as well as at the SC levels.
The extent of influence each challenge enforces on the SC partners differs and often
leads to inefficient processing of transaction activities. SCF challenges faced by a firm
can be internal as well as external. The internal challenges may be results of lack of
knowledge and organizational structure and processes required for successful SCF
implementation. The external challenges may be linked to complexity of technology,
processes, geographical areas and culture. Some of the challenges may not be under the
purview of management control and may induce the SC partners to take innovative
actions to respond to the changing environment in order to maintain the desired cash
flows in the SC. The dynamics of challenges continuously change the constraints that

1.Purchase Order 2.Purchase Order

Issuance Notification
Buyer SCF Provider Supplier
4.Invoice 3. Invoice
Notification Issuance
5. Invoice Approval & Payment 6. Payment

In-Transit Financing: Post-shipment Financing:

Pre-shipment Financing:
VMI Financing Receivables Financing
Raw Material Financing
In-Bound & Out-Bound Early-Payment Discount
Purchase-order Financing
Inventory Financing Programs

Figure 1.
SCF based on Financial Intermediary
SC event triggers
contribute to difficulties in managing and controlling operations and implementing Supply chain
effective strategies in the SCs to enhance SCF. It is therefore extremely important to finance
identify the critical challenges in order to chalk out the next developments in the
emerging field of SCF and for its widespread application in global SCs.
The challenges of SCF can in general be classified into six categories based on
organizational focus areas as:
(1) human resource (HR); 627
(2) information technology (IT) and technology;
(3) finance;
(4) inter as well as intra-firm coordination, collaboration and alliance;
(5) organizational policy, strategies and practices; and
(6) macro-institutional.

HR related challenges
One of the main challenges that confront SCF is the lack of knowledge and information
among SC managers about SCF programs (Hofmann and Belin, 2011). There is a lack of
the general awareness among corporate professionals about SCF initiatives. The lack of
knowledge of best practices of SCF is the key challenge to optimizing an organization’s
working capital. Due to this lack of widespread awareness, SCF has not yet fully realized
its potential in helping manage the end-to-end SC costs. Lack of skilled personnel and
training on SCF tools and techniques also add to the challenges facing SCF
implementation (Deloitte, 2009).

IT and technology related challenges

Apart from the lack of awareness, other major impediments towards widespread
acceptance of SCF come from the inefficiencies present in the internal as well as external
processing of financial transactions taking place along the SCs (Hausman, 2005; He et al.,
2010). Technology has become an intrinsic part of modern SCs (Walton and Gupta, 1999).
However, when it comes to processing financial transactions majority of corporations still
practice paper-based manual processes (Fairchild, 2005; Aberdeen, 2006b). These manual
intensive payment processes add delays to the receipt of payment and increases the days
sales outstanding (DSO) of the suppliers leading to additional working capital requirements.
Poor visibility into movement of goods along the SC also adds to the challenges.
Visibility into movement of goods is extremely important for successful
implementations of SCF in order to make recommendations and determine strategies
to improve and strengthen the financial SCs. Some vendors offer financial incentives to
entice their customers to pay early (Burkart and Ellingsen, 2004; Lee and Rhee, 2011;
Luo and Zhang, 2012). In many cases, the individual amounts to be gained may seem
small; however for companies operating on razor-thin margins, this issue becomes even
more crucial as this extra return can make a huge difference in the bottom line.
However, many organizations have cumbersome and inefficient processes that it is
impossible to get the invoice turned around in the requisite time.

Finance related challenges

There are a number of financial issues that challenge the widespread implementation
of SCF. Lack of automation in the payment processes along with poor visibility makes
BPMJ it difficult for SCF providers to implement working capital and third party financing
19,4 programs. The cumulative effect of all these is unreliable and unpredictable cash flows
throughout the SC. Delays in invoice reconciliation are a particular cause of
additional working capital that delay receipt of payments and increase DSO of
receivables (Hausman, 2005; Lindeen, 2010). Furthermore, the uncoordinated financial
aspects of the supply network cause many problems which results in the failure
628 to capitalize on the full economic value, efficiency and effectiveness
(Camerinelli, 2009; Siddall, 2010).
Lack of standardized settlement mechanisms through a finite number of trusted
providers linked with the cash management tools also add to the challenges
(Denecker and Helms, 2010). Cash management systems that provide a holistic view of
financial transactions taking place in the SC with the focus of maximizing the returns for
the entire value network considering payments to suppliers, short-term borrowing,
pledging decisions, purchases/sales of marketable securities with budgetary constraints
is the need of the hour (Croom, 2000; Handfield, 2006; Desai, 2009). Most of the cash
management systems that are used by treasuries today have a myopic objective of
maximizing the returns for their organizations without considering the impact of the
decisions on the entire SC. For accounting purposes treasuries concentrate on reducing
their cash-to-cash (C2C) cycle which measures liquidity and organizational valuation.
One of the ways to achieve shorter C2C is to extend average accounts payable (Farris II
and Hutchison, 2002). However, often this myopic practice has adverse effect on the
suppliers as they get constrained on cash.
In a tough economic environment it is not always easy to access funds
through traditional channels, and with banks tending to lend less; corporations are
finding alternative ways to source funding. Lack of access to required financing
has strained many buyer/supplier relationships. SCF programs may ease this
challenge for buyers and suppliers alike. This lack of financing hampers the firm’s
activity in terms of purchasing inventory, raw materials and adversely affects the
entire value chain.

Inter as well as intra-firm coordination, collaboration and alliance oriented challenges

Effective SC planning based on shared information and trust among partners is an
essential requirement for successful SCM (Harland, 1996; Horvath, 2001; Handfield and
Bechtel, 2002; Leeuw and Fransoo, 2009; Singh, 2011). Today companies recognize the
value of a collaborative approach that addresses the needs of both trading partners
(Silveira and Arkader, 2007; Laeequddin et al., 2012). Without common vision SCs
cannot reach their value potential (Krause, 1997; Barratt, 2004, Fawcett et al., 2011).
Business experts estimate there are millions of dollars of savings to be achieved in
efficiency savings if only the SC could be monitored and managed as a single cohesive
entity. However, there is, in general, a clear lack of common vision among the trading
partners to enhance and stabilize cash flows across the SC.
Lack of coordination between different departments within an organization also
poses a serious challenge to SCF (Kahn and Mentzer, 1996; Hofman, 2005; Fawcett et al.,
2008). Many times operations manager buys materials in bulk to obtain better prices,
whereas the financial officer requires purchases in small units because of the company’s
cash position. This lack of coordination between departments and intra-firm disparities
in objectives lead to sub-optimal credit decisions for the entire SC.
Organizational policies, strategies and practices oriented Supply chain
Organizational policies also sometimes act as deterrents for SCF and hinder the growth of finance
SCF programs. To be competitive, there is constant pressure to reduce the cost of finished
goods. To achieve cost savings, often supplier selection is based on cost parameters
However, the selection of suppliers in global SCs is becoming an increasingly strategic
decision (Verma and Pullman, 1998; Boer et al., 2001; Amid et al., 2011). Global sourcing,
market internationalization and the availability of large amounts of data and information, 629
facilitated by internet-based collaborative systems have made it possible and often
competitively necessary for organizations to search for suppliers on a global scale. To
address this new complex environment, companies must reevaluate and change the
process through which suppliers are evaluated.
In today’s business world, a supplier’s internal processes and management of those
processes, have increased in importance because the supplier now share the business risk
with the firm it services. Performance of the suppliers directly influences the performance
of various other SC partners and the whole SC as a unit. Typically, companies select
suppliers primarily based on their operational capabilities. But in today’s deteriorating
credit environment, a supplier’s operations and finances need to be given equal weight
(Sarkis and Talluri, 2006; Ambrose et al., 2010; Hald and Ellegaard, 2010). A financially
unstable supplier can have detrimental impact on the entire value chain.
There is also constant pressure from stockholders to improve key financial metrics.
The pressure drives companies to focus on these financial metrics without looking at
the broader picture of how their business policies might affect the SC processes
(Holmberg, 2000; Gunasekaran et al., 2004; Randall and Farris II, 2009). Adverse
economic conditions have underscored that a SC is only as strong as its weakest link.
It is in the buyer’s best interest that its strategic suppliers remain financially strong.
Situations often demand a collaborative and coordinated approach. The broader issues
that the firm needs to evaluate are the impact of supplier default and the difficulty in
replacing the supplier if it defaults.
Inventory management practices also impact the financial well-being of a firm.
Inventory is one of the major assets for a business and represents an investment that
is tied up until the item is sold. It also costs money to store, track and insure inventory.
Often firms accumulate excessive inventory due to their business diversity. This
diversity increases the complexity of the SC, and frequently increases the amount of
manual processing and custom programming. This can make development, deployment,
maintenance, and upgrading of the inventory management techniques very difficult.
Non-effective inventory management techniques and high business diversity also pose
challenges for an organization as well as its SC (Mentzer and Konrad, 1991; Fawcett et al.,
2008; Birou et al., 2011).

Macro-institutional challenges
Some macro-institutional factors such as geographical expanse, cultural differences
and government laws and regulations also impose serious challenges for
implementing SCF initiatives (Hudson, 2005; Camerinelli, 2009; Siddall, 2010). The
cross-border transactions are therefore complex in nature with multiple challenges
such as multiple currencies, different languages and multiple legal jurisdictions.
These cross-border transactions are often slow and inefficient and lead to challenges
for the global SCs.
BPMJ Global SCs today, need to cross borders and deal with different countries with
19,4 different political and cultural backgrounds. There are legal and cultural differences –
both between and within regions – that affect the approach taken towards financial SC
management (Flint, 2004; Hofmann and Belin, 2011). Following the 9/11 attack,
governments all over the world are hindering the free flow of goods shipments by
securing the entry of materials across borders to safeguard their nations from external
630 threats. The new rules and regulations are controlling trade with often bulky
documentation need to accompany the shipments. The impact on SC due to these new
rules and regulations cannot be underestimated. The difficulties in global trade stem
from not only the increase in costs but also delays and hardships in getting goods
across the border, which can lead to customer dissatisfaction and loss of business for
trade partners (Sheu et al., 2006; Banomyong, 2007; Marlow, 2010). All these processes
and regulations stretch the financial SCs and as a fact, miscommunications between
global partners may lead to severe SC disruptions.

3. A survey of challenges of SCF in the context of Indian industries

To appreciate the awareness and get a first-hand view of the perception and belief about
the importance of SCF challenges, a survey amongst treasury managers at different
organizations in India was conducted. To carry out the survey, a questionnaire was
prepared based on an extensive review of the current developments in financial SCs from
reports in academic as well as trade journals and after in-depth discussions with industry
experts. In the survey, the industry experts were required to indicate the existence of or
shortlist the SCF challenges in their SCs. In all, 80 responses were received out of 120.
The respondents were managing directors, general managers, SC managers, senior
engineers, and SC executives who were all involved in the SC decision-making in their
respective organizations. The summary statistics of the survey are presented in the
pie-charts as shown in Figure 2(a)-(e) that address turnover-wise category of the
organizations, organizations’ position with respect to their markets, the role played by
them in the context of SCM and perspectives for answering this survey, i.e. buyer (buy
side), seller (sell side) or both, and the duration for which SCF initiatives have been in place
in their respective organizations. Figure 2 basically shows the typical characteristics of the
organizations involved in the survey that clearly represent Indian industries in whole.
Considering the exploratory nature of the investigation, direct opinion survey was
employed as the primary data gathering vehicle. In the survey, the industry experts
were required to indicate the existence of or shortlist the challenges of SCF in their SCs
in the context of six categories as explained in Section 2. The summary statistics of the
survey on challenges of SCF is shown in Figure 3 that ascertains the relative
importance the respondents give to the various SCF challenges.
The survey revealed the mindset and the viewpoints of the practitioners towards
the SCF challenges. From the survey, it is observed that some of the categories of SCF
challenges are more influential than the others. As expected it is observed that the
finance-related challenges impose the highest impact on SCF. Inter as well as intra-firm
coordination, collaboration and alliance oriented challenges take the next higher spot.
Organizational policies, HR, IT and macro-institutional factors also play a critical role in
financial SCs. Within each category also there are some challenges that have higher impact
than the others. For instance, the lack of knowledge and information about SCF emerged
as the most significant of the HR related challenges whereas slow processing of payment
 Supply chain
finance

631

(a) (b)

(c) (d)

(e)
Notes: (a) Percentage of respondents in terms of annual turnover (in Rs. Crores); Figure 2.
(b) organization’s position in the market; (c) role(s) of organization in the SC; Overview of the
companies surveyed
(d) perspectives for answering this survey; (e) time for SCF initiative in place

transactions, unpredictable cash flows, lack of coordination and collaboration in the

payment processes and reducing cost of finished goods and higher diversity of business
emerged as the most important challenges in other categories. Moreover, some challenges
are causes whereas some are effects of those causes. If all these challenges are linked using
a cause-effect logic and arranged in a specific hierarchy, there may be a few (one or two)
challenges that a company must overcome to enhance cash flows in its SC. For a particular
BPMJ
19,4

632

Figure 3.
A survey of SCF
challenges

company challenges in HR may be dominant whereas for others challenges in finance may
play a major role. Hence, the actions that need to be taken to overcome the challenges may
change from company to company based on the existence of the challenges in each
category. Therefore, it is imperative to analyze and study the interrelationships or
interdependence among the SCF challenges of a specific company to suggest a concrete
action plan. The same attempt has been made in the following section considering a Supply chain
specific Indian company. The ISM that we have developed is a well-accepted methodology finance
to ascertain the relationships between complex variables and the model can be used by
managers to analyze and deduce the interdependence among the SCF challenges they face,
which in turn, would help them chalk out measures to overcome them.

4. Experience of an Indian company 633

The company identified for the study is one of the largest Indian-owned healthcare firms
engaged in manufacturing and distributing more than 300 fast moving consumer goods in
more than 60 countries. It has more than ten modern manufacturing plants, 3,500
distributors and more than 200,000 retail reach worldwide. The goods are passed through
a number of channels between the distribution center and the retail outlet or shoppers as
shown in Figure 4. The involvement of the stockiest, sub-stockiest, super-stockiest,
institution, wholesaler and semi-wholesaler are dependent on geographical area and their
existence in the area.
The company focuses on innovation in products and processes, optimizes production
by utilizing local resources and improves operational efficiencies by leveraging the most
modern technology available. It also focuses on growing core brands across categories,
reaching out to new geographies, within and outside India. The company operates on the
principle of mutual trust and transparency in a boundary-less organization. The company
has had SCF initiatives in place from the past ten years; however it has been facing many
challenges. In order to get the status of SCF and to gain an in-depth insight into the
challenges, senior managers were contacted who are actively involved in the financing
decisions and the trade discount initiatives of the firm. They responded to our inquiry from
the perspective of a supplier in a SC transaction. From the various SCF challenges, they
shortlisted the ten most significant challenges faced by the organization as shown in Table I.

5. Methodology and model development

The various SCF challenges affect the cash flows and working capital of SC partners.
It is extremely important to understand the dynamics of the different challenges and the

Factory

Distribution Centre

Stockiest Super-stockiest Institution

Wholesaler
Sub-stockiest
Semi-wholesaler

Retail Trade Retail Trade

Figure 4.
Company’s SC structure
Shoppers and Consumers
BPMJ
Code Challenges of SCF
19,4
A Lack of knowledge and information about SCF
B Unreliable and unpredictable cash flows
C Pressure to reduce the cost of finished goods to be competitive in market
D Lack of third party financing
634 E Pressure from top management to improve key financial ratios
F Lack of training on SCF
G Lack of automation of invoicing and payment processes
Table I. H Lack of common vision among the SC partners
SCF challenges faced I Longer transaction cycle in sourcing, hence putting financial strain on suppliers
by a company J Non-effective inventory management techniques

direct and indirect relationships between them as these in combination provide a much
clearer picture of the pertinent issues rather than the individual factors taken in isolation.
To analyze inter relationships among the company’s challenges, the approach of ISM has
been used since it is a well-accepted methodology that deduces the relationships between
complex variables based on the judgment of a group or an individual.
The ISM approach is an interpretive methodology that incorporates experts’ subjective
judgment and their knowledge base in a most systematic manner (Thakkar et al., 2007). It is
an interactive planning and learning process that allows a group of people or an individual
to develop a compressive ordered structure of a complex set of elements of the system that
define an issue or problem (Sage, 1977; Bolanos et al., 2005; Faisal et al., 2006). The approach
portrays the specific relationships among the complex set of variables in the form of a
hierarchical structure. In other words, ISM is a simple approach that transforms unclear,
poorly articulated, ill-structured mental model of systems into a compact, clear, visible, and
well-defined format (Jharkharia and Shankar, 2004; Thakkar et al., 2007). ISM has been used
by a number of researchers (Mandal and Deshmukh, 1994; Jharkharia and Shankar, 2004;
Ravi and Shankar, 2005) to develop a better understanding of the systems under study.
To meet the objective of the study, a systematic procedure has been carried out
which has following steps:
(1) Identify and list the SCF challenges which are relevant to the company.
(2) Establish a contextual relationship between SCF challenges and develop a
structural self-interaction matrix (SSIM).
(3) Develop a direct and final reachability matrix.
(4) Carry out level partition to build a hierarchical relationship structure (HRS).
(5) Build HRS and understand the relationship dynamics of SCF challenges.
(6) Suggest managerial implications to analyze the relationship dynamics and
identify the means to deploy SCF.

5.1 Identify and list the SCF challenges which are relevant to the company
The company has been realizing ten different SCF challenges as shown in Table I.
However, it was very difficult for the company to identify the core problem and take
appropriate measures.
5.2 Establishing contextual relationships between SCF challenges and develop a SSIM Supply chain
Various types of contextual relationships can be identified between the elements under finance
consideration, some of which suggested by Bolanos et al. (2005) are as follows:
.
definitive (implies, origins, is reachable from);
.
comparative (is more important than, is more critical than);
.
influence (causes, leads to, affects, propagates, aggravates, magnify, 635
strengthens); and
.
temporal (must precede, must follow).

For investigating the relationship dynamics of SCF challenges a contextual relationship

of “leads to” type is used as it addresses how one challenge (i) leads to another SCF
challenge ( j). The respondents from the company were consulted to identify the nature of
contextual relationships among the different challenges. The existence of a relationship
between any two challenges (i and j) and the associated direction of the relationship was
derived through our interviews. Four symbols are used to indicate the direction of
influence that exists between any two challenges (i and j). These four symbols are:
(1) FR: forward influence in which challenge “i” leads to challenge “j”;
(2) BR: backward influence in which challenge “j” leads to challenge “i”;
(3) CR: cross influence in which challenges “i” and “j” lead to each other; and
(4) NO: no influence between challenges “i” and “j”.

Based on this contextual relationship, a SSIM is developed (Warfield, 1974) as shown in

Table II. This table is self explanatory; however, the following example is used to bring
out better clarity:
.
The challenge “lack of knowledge and information about SCF (A)” leads to the
challenge “longer transaction cycle in sourcing, hence putting financial strain on
suppliers (I)”, so the relationship is forward and the symbol used is “FR”.

Challenges of SCF Code A B C D E F G H I J

Lack of knowledge and information about A – NO NO NO NO BR FR NO FR NO
SCF
Unreliable and unpredictable cash flows B – NO BR FR NO BR BR FR BR
Pressure to reduce the cost of finished goods C – NO BR NO NO NO NO FR
to be competitive in market
Lack of third party financing D – NO NO NO BR FR NO
Pressure from top management to improve E – NO NO NO NO NO
key financial ratios
Lack of training on SCF F – FR BR FR NO
Lack of automation of invoicing and payment G – BR FR NO
processes
Lack of common vision among the SC H – FR FR
partners
Longer transaction cycle in sourcing, hence I – NO
putting financial strain on suppliers Table II.
Non-effective inventory management J – Structural self-interaction
techniques matrix
BPMJ .
The challenge “lack of knowledge and information about SCF (A)” does not lead
19,4 to the challenge “lack of training on SCF (F)”, but the challenge “F” leads to the
challenge “A”, so the relationship is backward and the symbol used is “BR”.
.
The challenges “lack of knowledge and information about SCF (A)” and
“unreliable and unpredictable cash flows (B)” do not influence each other, so the
symbol used for relationship is “NO”.
636 .
Cross relationships (CR) do not exist among the SCF challenges.

The SSIM was presented before two other senior executives of the company and
consensus on its applicability was obtained before proceeding onto the next steps.

5.3 Prepare a direct and final reachability matrix

The SSIM was then converted into a binary matrix called as the direct reachability
matrix by replacing the symbols FR, BR, CR and NO with 1 and 0 according to the
influencing relationship between SCF challenges. For substituting the binary values
(1s and 0s), the following rules have been applied:
.
if the cell value (i, j) in the SSIM is “FR”, then assign value “1” to the cell (i, j) and
“0” to the cell (j, i);
.
if the cell value (i, j) in the SSIM is “BR”, then assign value “0” to the cell (i, j) and
“1” to the cell (j, i);
.
if the cell value (i, j) in the SSIM is “CR”, then assign value “1” to both the cells
(i, j) and (j, i); and
.
if the cell value (i, j) in the SSIM is “NO”, then assign value “0” to both the cells
(i, j) and (j, i).

Following these rules and after incorporating the transitivity in the relationships the
final reachability matrix was developed as shown in Table III. The transitivity
relationship basically indicates indirect relationship. For instance, if challenge A leads
to challenge B and B leads to challenge C, then the challenge A must also leads to the
challenge C (Mandal and Deshmukh, 1994).
In the final reachability matrix the measure of influencing (MI) and measure of
being influenced (MBI) for each challenge was also estimated. The MI for a challenge is
the total numbers of challenges that it is influencing or total number of interactions in
the corresponding row of Table III. And, the MBI for a challenge is the total number of
challenges that it is being influenced by or total number of interactions in the
corresponding column of Table III. Based on the MI and MBI, the challenges are also
ranked, as shown in the last column and the last row of Table III, respectively. These
MI and MBI scores were later used in the MIMBI analysis.

5.4 Carry out level partition

Next in order to develop the hierarchical relationships, level partitioning was carried
out using the final reachability matrix (Table III). From the reachability matrix, the
influencing set (X) and influenced set (Y) (Warfield, 1974) were identified for each
challenge of SCF. The former set is a set of challenges being influenced by a challenge
including itself, whereas the later set is a set of challenges influencing a challenge
including itself. The intersection (Z) of these sets is thereafter derived for all
 Supply chain
Challenges of SCF Code A B C D E F G H I J MI Rank
finance
Lack of knowledge and information A 1 1* 1* 0 1* 0 1 0 1 1* 7 3
about SCF
Unreliable and unpredictable cash B 0 1 1* 0 1 0 0 0 1 1* 5 5
flows
Pressure to reduce the cost of finished C 0 1* 1 0 1* 0 0 0 1* 1 5 5 637
goods to be competitive in market
Lack of third party financing D 0 1 1* 1 1* 0 0 0 1 1* 6 4
Pressure from top management to E 0 1* 1 0 1 0 0 0 1* 1* 5 5
improve key financial ratios
Lack of training on SCF F 1 1* 1* 0 1* 1 1 0 1 1* 8 2
Lack of automation of invoicing and G 0 1 1* 0 1* 0 1 0 1 1* 6 4
payment processes
Lack of common vision among the SC H 1* 1 1* 1 1* 1 1 1 1 1 10 1
partners
Longer transaction cycle in sourcing, I 0 0 0 0 0 0 0 0 1 0 1 6
hence putting financial strain on
suppliers
Non-effective inventory management J 0 1 1* 0 1* 0 0 0 1* 1 5 5
techniques
MBI 3 9 9 2 9 2 4 1 10 9
Rank 4 2 2 5 2 5 3 6 1 2
Table III.
Note: 1 * shows transitivity Final reachability matrix

the challenges. The challenge(s), for whom the influencing (X) and the intersection (Z)
sets are the same, occupies the top level in the hierarchical model. The challenges at the
top of the hierarchical model do not reach to any higher than their own level. Once the
challenges at the top level were identified and placed, they were removed from the list.
The same process was then carried out to identify the challenges in the next level of
hierarchical model. This process of identifying and placing challenges at different
levels was repeated until all the challenges were recognized with their specific levels.
The whole process of level partitioning was based on precedence relationships and the
elements arranged in topological order (Thakkar et al., 2005). The methodology for
identifying the first level challenges is shown in Table IV. The results for iterations
I2-I6 are summarized in Table V. These levels help in developing the diagraph and the
final hierarchical relationship model.

5.5 Building the HRS and develop MIMBI diagram

After level partitioning, the final reachability matrix was rearranged as per the levels of
challenges, which led to a canonical form (lower triangular form) as shown in Table VI.
The final reachability matrix in canonical form was directly used for constructing HRS
of SCF challenges. The relationship between the challenges i and j was shown by an
arrow from i to j or j to i depending on the type of relationship. After removing the
transitivities as described in ISM methodology, the diagraph was finally converted into
ISM as shown in Figure 5. Figure 5 shows the hierarchy of the SCF challenges and how
various SCF challenges are related to each other and their specific direction of influence.
The hierarchical structure shown in Figure 5 shows the specific order and direction
on complex relationships of the challenges. For instance, the challenges at the top of the
BPMJ
Challenge Influencing set (X) Influenced set (Y) Intersection (Z) Level
19,4
A A, B, C, E, G, I, J A, F, H A
B B, C, E, I, J A, B, C, D, E, F, G, H, J B, C, E, J
C B, C, E, I, J A, B, C, D, E, F, G, H, J B, C, E, J
D B, C, D, E, I, J D, H D
638 E B, C, E, I, J A, B, C, D, E, F, G, H, I, J B, C, E, J
F A, B, C, E, F, G, I, J F, H F
Table IV. G B, C, E, G, I, J A, F, G, H G
The methodology H A, B, C, D, E, F, G, H, I, J H H
for identifying the I I A, B, C, D, E, F, G, H, I, J I L-I
first level challenges J B, C, E, I, J A, B, C, D, E, F, G, H, J B, C, E, J

Iteration Challenge Influencing set (X) Influenced set (Y) Intersection Level

I2 B B, C, E, J A, B, C, D, E, F, G, H, J B, C, E, J L-II
I2 C B, C, E, J A, B, C, D, E, F, G, H, J B, C, E, J L-II
I2 E B, C, E, J A, B, C, D, E, F, G, H, J B, C, E, J L-II
I2 J B, C, E, J A, B, C, D, E, F, G, H, J B, C, E, J L-II
I3 D B, C, D, E, I, J D, H D L-III
I3 G G A, F, G, H G L-III
I4 A A A, F, H A L-IV
Table V. I5 F F F, H F L-V
The iterations I2-I6 I6 H H H H L-VI

Level Challenege I B C E J D G A F H

L-I I 1 0 0 0 0 0 0 0 0 0
L-II B 1 1 1 1 1 0 0 0 0 0
L-II C 1 1 1 1 1 0 0 0 0 0
L-II E 1 1 1 1 1 0 0 0 0 0
L-II J 1 1 1 1 1 0 0 0 0 0
L-III D 1 1 1 1 1 1 0 0 0 0
L-III G 1 1 1 1 1 0 1 0 0 0
L-IV A 1 1 1 1 1 0 1 1 0 0
Table VI. L-V F 1 1 1 1 1 0 1 1 1 0
Canonical matrix L-VI H 1 1 1 1 1 1 1 1 1 1

structure have higher MBI and weak MI, whereas the challenges at the bottom have
lower MBI and higher MI. The MBI values increase from bottom to top, whereas MI
scores increase from top to bottom of the HRS. Therefore, challenges placed at the top
of the structure are of less importance, whereas the challenges placed at the bottom
are relatively of high importance. In other words, the challenges placed at the top of the
structure may be the final outcomes of the relationship structure or final reach of all the
remaining challenges typically placed at bottom of the structure.
 (I) Longer transaction cycle
Supply chain
in sourcing, hence putting
financial strain on suppliers
Level-I
finance

(B) Unreliable (C) Pressure to reduce the (E) Pressure from top (J) Non effective
and unpredictable cost of finished goods to be management to improve inventory management Level-II 639
cash flows competitive in market key financial ratios techniques

(G) Lack of automation

(D) Lack of third party of invoicing and Level-III
financing payment processes

(A) Lack of knowledge

and information about Level-IV
supply chain finance

(F) Lack of training on

Level-V
supply chain finance

(H) Lack of common Figure 5.

vision among the SC Level-VI
partners HRS of SCF challenges

These challenges can be grouped into various clusters for identifying possible
hierarchical relationships among various clusters at different levels and also within each
cluster. The challenges based on MI (the challenges which have potential to influence
other challenges) and MBI scores (the challenges which will be influenced by others)
are therefore categorized into four groups (G1 to G4) as shown in Figure 6. Here, the
values of MI and MBI indicate specific influencing and influenced strength of each
challenge. This classification is similar to that used by Mandal and Deshmukh (1994)
and Faisal et al. (2006).
The MIMBI diagram helps to classify the various SCF challenges into four clusters and
also gives some valuable insight into the relative importance and interdependencies of the
challenges. The first cluster (G1) consists of the “autonomous challenges” that have weak
MI and MBI values. These challenges are relatively disconnected from the system and a few
of them may be strong. The second cluster (G2) consists of the dependent challenges that
have weak MI and strong MBI scores. The third cluster (G3) has the linkage challenges that
have strong MI and MBI values. These challenges are unstable signifying that any action
on these challenges will have an effect on other and also a feedback on themselves. Forth
cluster (G4) includes the independent challenges having strong MI and weak dependence
(MBI). In the present case, there are no autonomous challenges.
The reasons to classify the challenges in different families may be, first, all the
challenges do not have equal significance in a competitive business environment; second,
their influence may be of different magnitude and durations; third, their span of
influence and vulnerability across the SC may be different and finally, each challenge can
BPMJ Code for SCF challenge (MI,MBI)
19,4
Group G4 Group G3
10
H (10,1)
9
F (8,2)
640 8
A (7,3)
Measures of influencing (MI)

6
D (6,2) G (6,4)
B (5,9) C (5,9)
5
J (5,9) E (5,9)
4

2
I (1,10)
1
Group G1 Group G2
Figure 6.
MIMBI diagram
1 2 3 4 5 6 7 8 9 10
of SCF challenges
Measures of being influenced (MBI)

be reduced, eliminated or adapted by various SCF tools, techniques, programs, policies

and practices which are managed in different ways with different costs.

6. Managerial implications
Organizations face different kinds SCF challenges, however, they are unaware which of
those challenges could be more dominant and which could surface more frequently.
The survey done in this paper reveals the list of possible SCF challenges, the categories
of SCF challenges that have more influence and the challenges that have higher impact
in each category. To overcome the challenges companies need to take appropriate
actions related HR, finance, technology, collaboration and infrastructure. An action
taken to overcome a particular challenge will initiate a possible chain of subsequent
actions that will in turn mitigate a set of SCF challenges. It is therefore appropriate to
say that training on SCF tools, techniques and practices can enhance knowledge on
SCF and support automation of payment transactions along the SC. Automation of
payment processes using latest technology would increase visibility into movement of
goods. Moreover, for financial stability across the SC, organizations should consider
different facets of cash flow management such as total cash flow cycle time, DSO,
payment discounts, transaction cycle in sourcing and distribution, acceptable terms,
conditions and contracts, etc. As organizations are tightly integrated in the SC,
they should initiate coordinative and collaborative approaches within and across the
SC to reduce the total cycle time in order to improve overall financial stability of the SC.
Organizations’ policies and strategies, in general, play a critical role. Organizations Supply chain
should therefore develop the strategies at the early stages of SC design and/or modify finance
them during execution with the overall focus on enabling the SCF initiatives.
Organizations should also consider geographical challenges, government laws and
regulations and cultural aspects equally while enhancing SCF initiatives.
The actions to be taken by any firm will depend on the specific challenges it faces.
However, it is not clear which type of actions, strategic or tactical, should be taken to 641
overcome a particular challenge or a set of challenges. ISM can be applied in this context
by a firm to develop a hierarchical structure of SCF challenges and classify them into
different categories using MIMBI analysis. The same attempt has been made in this
paper for a particular Indian firm for which a set of relevant actions are prescribed after
developing a hierarchical structure of SCF challenges facing and classifying them using
MIMBI analysis.
In the MIMBI analysis (Figure 6), the challenges classified in the cluster G4 such as
“lack of common vision among the SCF”, “lack of training on SCF”, “lack of knowledge
and information about SCF”, “lack of automation of invoice and payment processes”,
and “lack of third party financing” are independent challenges having strong MI and
weak MBI scores. These challenges are more HR and inter/intra-firm oriented and are
the basic causes that demand SCF initiatives. The company must think at tactical and
strategic level to overcome these challenges.
However, the HRS depicted that “lack of common vision among the SC partners” is the
core challenge of SCF which has the lowest MBI score indicating it is not being influenced
by others. The reasons could be that the company is facing high cost of integration and lack
of collaborative technologies to manage end-to-end supply chain processes. The company
must therefore work under a common vision and goals along with its SC partners to start
implementing or enhancing SCF initiatives. This would help achieve the desired cash flows
and maintain required working capital across the SC. Once the common vision is developed
challenges like “lack of training on SCF” and “lack of knowledge and information about
SCF” are automatically solved. Under a common vision, the company should also provide
enough training on SCF to its managers, executives as well as SC partners. After creating
awareness about SCF, the company could focus on automation of payment processes in the
SC and simultaneously look out for third party financing.
In MIMBI analysis, the challenges categorized in the cluster G3 such as “unreliable
and unpredictable cash flows”, “pressure to reducing the cost of finished goods to be
competitive in market”, “pressure from top management to improve key financial
ratios”, and “non effective inventory management techniques” are linkages and policy
or strategy oriented challenges that have strong MI and MBI values. These challenges
connect the bottom challenges to the top challenges as shown by the HRS (Figure 5)
and are related to the internal environment of SC. These challenges can be overcome by
other challenges which are at the bottom of the HRS model. For instance, finding 3P
financer and automating payment processes within and across the SC may lead to
predictable cash flows, improved key management ratios and reduced cost of finished
goods. Good inventory management practices may also reduce financial burden on the
SC players and solve the problem of working capital.
The only challenge “longer transaction cycle in sourcing” categorized in cluster G2 is
primarily related to inbound side and as a result putting financial strain on suppliers.
This is a dependent challenge that is placed at the top of the HRS having lower MI and
BPMJ highest MBI score. The company should therefore overcome all the challenges in cluster
19,4 G3 by adopting business practices like raw material financing, e-payment, e-invoicing,
purchasing cards, etc.
Based on the challenges and their classification and levels in HRS, the company can
take appropriate actions (enablers) that would promote or enable the company and its
partner to increase stability of SC, increase utilization of working capital and streamline
642 transaction activities and processes. To assess the improvement the company can use a
number of performance measures like DSO, days payable outstanding, days in
inventory, etc. While implementing the enablers, the company may also face many
inhibitors like difficulty in quantifying the return on investment (ROI) or potential
saving of SCF programs, lack of skilled people, lack of collaborative technologies, etc.
that may impede the progress of enablers.

7. Conclusion
Organizations must identify potential influences, causes and sources of finance-related
challenges at every significant operation, business process and link along the SCs in order
to assess their risk exposure. However, the challenges may be of different nature and their
impact could be severe or inconsequential on managing the cash flows in the chain. They
may relate to different processes of the SC and associate with various players and entities.
Identifying and analyzing the SCF challenges is therefore the first step in initiating various
business strategies for enhancing cash-flow management in the end-to-end SCs.
The survey conducted in this paper listed a set of challenges that helped us to
understand the mindset and the viewpoints of the practitioners towards SCF. After
obtaining an overview of the different SCF challenges, an Indian company with global
operations was approached to gain an in-depth understanding of the challenges it has
been facing in relation to SCF. After establishing relationships among the challenges,
a HRS was developed and MIMBI analysis was carried out that helped understand the
relationship dynamics of SCF challenges and identify actions at both strategic and tactical
levels. This analysis also brought out some interesting facts for deploying SCF and
motivated the company to rethink, reengineer, redefine and redesign SC relationships,
business processes and strategies to achieve desired cash flow in its SC.
The HRS developed using ISM model incorporates experts’ subjective judgments
and their knowledge base in a most systematic manner and provides ample opportunity
for revision of judgments. However, the model is not statistically validated. The research
can be further be extended by applying structural equation model (SEM) that has the
capability of testing the validity of such hypothetical model. This study is based on the
findings from the Indian industry; future research may include a large-scale survey and
case studies across organizations located in different countries and operating under
different economical environments.

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About the authors

Dileep More is an Assistant Professor in the Operations Management Group at the Indian
Institute of Management Calcutta. He has a Doctorate degree in Industrial Engineering and
Operations Research from the Indian Institute of Technology Bombay and Master of Technology
degree in Industrial Engineering and Management from the Indian School of Mines, Dhanbad,
India. His fields of interest are purchasing, manufacturing, logistics, human resources,
technology management and enterprise flexibility. Dileep More is the corresponding author and
can be contacted at: dileep_more@iimcal.ac.in
Preetam Basu is an Assistant Professor in the Operations Management Group at the Indian
Institute of Management Calcutta. He has a Doctorate degree in Operations Management from
the University of Connecticut, USA. His research interests include supply chain management,
start-up operations, services outsourcing, supply chain finance and working capital
management. His research has been published in peer-reviewed journals such as Journal of
Operational Research Society, International Journal of Logistics Systems and Management and
International Journal of E-Business Research.

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