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Supply-chain management techniques are filtering down from retailers to smallerbusinesses, driving up demand for inventory financing, a pair of New York-based trade bankers say.
Though the trend is not new, it is being felt more acutely than in the past. As the economy cools, consolidation in the retail industry takes its toll, even on brand names like Bradlee's and Montgomery Ward, which have recently filed for bankruptcy protection.
"The problem is, the burden of stocking inventory and planning on behalf of the store is on the small guy,' said Jeffrey A. Koslowsky, executive vice president of Gerber Trade Finance Inc., which has been in business for five years. "Retailers are taking longer to pay (suppliers) back, requiring small guys to hold stock on the front end."
Koslowsky predicts an increase in the demand for trade finance services among his 40 or so clients, businesses with between $2 and $20 million in annual sales. Gerber uses inventory financing to help businesses that distribute and make consumer products and commodities.
Retail giants Wal-Mart and Costco are known for their strategy of forcing suppliers to hold stock for as long as possible to keep their shelves lean. The retailers, says Gerald L. Joseph, president of Gerber, are holding onto the cash for longer periods.
A story published last year in the Wall Street Journal, for example, outlined a strategy by Costco and Kimberly-Clark to collaborate on the so-called "vendor-managed inventory" strategy in which Kimberly-Clark pays for managing Costco's inventory, except for the actual shelf-stockers in store aisles.
The deal saves Costco in storage and inventory department staffing, cutting its warehouse supply from the equivalent of four to two weeks.
Gerber executives also say a reason for more pressure on smaller businesses to keep stock on hand is the advent of Internet-based electronic date interchange technology. Large retailers, they say, are forcing many small distributors onto the system.
In the past, not all small businesses were enamored with the so-called EDI system, which cost as much as $30,000. And indeed, many businesses stayed away from the EDI system, said John Anselma, head of Paragon Financial Group, an asset-based lender based in Boca Raton, Fla.
To encourage smaller businesses to adopted the electronic system, Koslowsky said Wal-Mart has been giving Internet-based EKI software, called Retail Link, to Gerber clients. The technology gives small distributors immediate access to sell-through data.
Anselma also said he expects the Internet to upstage traditional EDI technology among small businesses.
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