Supply chain management, as we know it today, has emerged out of logistics and transportation roughly between the 1980s and 2000s. What was once seen as just a fancy new term for logistics grew into a distinct discipline in business and management. Nowadays, nobody would question the relevance of supply chain management in the global economy, or even worse challenge that it is a “thing” (good or bad) that has a role in society. What happened then is that supply chain management underwent and successfully completed a project of validation. This is relevant, because Supply Chain Finance (SCF) appears to be at a similar juncture of its evolution. 

From Understanding to Validation 

Before concepts like “supply chain management” or “supply chain finance” are accepted in society, they pass through two stages: the first one is called a “project of understanding”, which involves developing a clear and convincing explanation of the concept’s significance and the robustness of its foundations—what it is, how and why it operates, its potential impacts, and so on. This understanding is, in essence, about making the concept accepted and clear to everyone involved. If the project of understanding fails, the concept will not stick. If it succeeds, it sets the stage for the next phase: validation. 

A “project of validation” is essentially how the now understood concept proves its mettle, showing that it’s not just a flash in the pan but something genuinely useful and different. Something that is there to stay, and that has a place in society. A process of validation has, typically, three components: 

1. Representation: Building a tribe around the concept by forming associations, involving knowledge institutions (published research, teaching, and so on) and gaining recognition by creating a “community of practice”. 
2. Systems: Putting the right infrastructure in place—best practices, regulatory frameworks, tech solutions, and so on—allows the concept to operate smoothly across various contexts. Standardise everything so that it becomes common practice to “use” the concept. 
3. Tools for Measurement: Developing solid metrics and tools that allow any individual to “test” the ideas or concepts on their own, verifying their effectiveness (or lack thereof) through concrete, usually quantitative, data. Measuring serves the purpose of validating what are ‘good’ or ‘bad’ practices and performance levels. 

This is what happened to Supply Chain Management between the ‘80s and the 2000s, following its successful project of understanding: it built representation by establishing a community of practice (professional associations, such as CSCMP, universities offering courses and degrees, certifications, and so on). It built systems by defining standard models and frameworks (such as SCOR), legislation and technological solutions. It build recognised standards of excellence (such as Gartner’s magic quadrants, whatever they mean). Finally, it developed tools for measurements, such as the Kraljic matrix, the idea of lead times or responsiveness, and so on. This standardized approach to thinking about and measuring Supply Chain Management has enabled consistent evaluation across the field. 

It should be noted that a process of validation is, per se, neither good or bad. It is not what makes the idea, concept or domain effective and, even more importantly, nor does it certify its positive impact on society. It simply serves the purpose of standardising our collective knowledge about something, making it easier to spread and become commonly accepted. Some, for example, believe the project of validation for supply chain management has influenced perception, but little else. It is also not a given that project of validations succeed. Some others believe the same supply chain management project has essentially failed to validate anything. But those are both stories for another time. 

The Parallel Path of Supply Chain Finance 

One might consider the time period between roughly 2008 and 2020 as SCF’s project of understanding. This is obvious from our perspective as SCF Community: the first events and projects we run (and really the first years of work in this field) were almost entirely focused on defining what SCF is, coming to a common understanding around the term. Most of the discussions tended to revolve around building a convincing explanation of what is “in” and what is “out”, how it operates, potential impacts and so on. 

This is fairly behind us, now. This is not to say there is no need to discuss those points anymore, but such a discussion today tends to focus on challenging the status quo, rather than figuring out what the status quo is. Moreover, the spirit of practitioners involved in SCF has changed. For example, in our recent event in Munich (humblebrag incoming), most attendants agreed that it was a meeting of “thought leaders” that have “deep knowledge” of the subject. Something that years ago would not have happened, as at that time most people would feel like explorers and innovators rather than thought leaders with deep knowledge: a sign of SCF being past its project of understanding. 

Thus, SCF is now in its project of validation phase. Let’s see how that is going: 

1. Representation: SCF has built robust representation and advocacy, successfully defining a role for itself different from general corporate investment banking or trade finance. Beyond the SCF Community, organizations like FCI and the EU Factoring and Commercial Finance Association provide a solid foundation of support. Additionally, trade and publishing players such as BCR and GTR lend further legitimacy to SCF in a broader context. Higher education is moving on the teaching side as well, with institutions like Politecnico di Milano now offering certifications in SCF. 
2. Systems: Progress in systematization is evident with recent updates in accounting practices, particularly around reverse factoring. These efforts towards standardization are indeed subject to debate (often, rightly so!); however, they signal a move towards more structured approaches within the field. 
3. Tools for Measurement: This area represents the most significant gap in the current validation process for SCF. The lack of robust tools to measure the effectiveness of SCF limits its broader acceptance and understanding. Developing these tools is paramount for demonstrating the value of SCF practices established during the project of understanding. 

Thus, SCF must now prioritize the development of those measurement tools. Such tools will not only facilitate a deeper understanding and adoption of SCF practices but also complete the validation project, hopefully certifying a certain level of strategic relevance for the topic. All stakeholders stand to benefit from this: buyers and suppliers can access standardized measures and benchmarks for their programs, while funders and fintechs can utilize those tools to validate their products, as well as showcase their excellence or innovation. 

We as SCF Community see our role as being at the forefront of creating these tools. We have taken steps already, for instance, developing a benchmarking tool for reverse factoring programs offered to corporates within our network. However, this ought to be a collecting project. Thus, this is a call for support and collaboration: if you believe in the importance of completing the validation of SCF and want to contribute to the development of measurement tools, reach out. In this critical juncture in the development of SCF it is important to step up, influence and finally validate the future of Supply Chain Finance.

To learn more about the topics around SCF, join us at our next event in Utrecht! Register here: https://scfcommunity.org/event/scf-corporate-event-netherlands-2/