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| Executive summary
• Direction has to come from CEO level |
SJ, SCF Capital There is rarely one person with the title of financial supply chain manager. When companies talk about supply chain they’re usually referring to the physical. Elements of financial creep in, for example, procurement and negotiating payment terms with suppliers. They tend not to think about the end to end. That’s the challenge. The financial supply chain touches many different functions. Each has separate priorities and objectives. Few people in corporate organizations have a holistic view of the finance of an end-to-end supply chain. It’s at CFO level that projects get driven, because objectives, priorities and metrics need to be aligned across the organization. Treasury is not at a high enough level.
SC, AstraZeneca The physical supply chain runs through the business, so initiatives on financing cannot be developed in isolation. Treasury, however, should be positioned to drive initiatives as it can facilitate the cross-functional working needed and will understand the financing implications – but senior-level support is critical.
CH, Lloyds TSB It needs cultural direction from a CEO. We’ve worked with companies to implement financial supply chain solutions where procurement and treasury have been in conflict. It’s a lot easier when the two work in tandem. When there’s conflict over what to implement, finance or treasury usually win, but that can be at a cost to the company.
SG, Lloyds TSB Corporates recognize the need to appoint supply chain directors at board level. Globalization has forced them to realize that you can’t drive a business with a silo mentality. But the physical supply chain has been leading the process. The treasury function has only been a bit-part player. You need to get clarification on what ‘supply chain’ means. It is a combination of physical and financial.
AA, Trelleborg There should be one person at management level in charge of an FSCM group. It is vital that this group is cross-functional with representation from purchasing, finance, IT and legal.
SC, AstraZeneca Ownership cannot sit within one function. It needs to be the business as a whole, through senior level support. Differing functional objectives need to be understood and aligned.
JL, J&W Associates So you need a supply chain director at the highest level to make it happen, and you have to move across all geographies. Of the 10 treasury departments I’ve talked to, five have said they’ve only just been asked to start doing this. Why so slow?
AA, Trelleborg We’re not slow, although it is tedious work and takes time. Let me illustrate the complexity. Our company is decentralized and consists of more than 100 legal entities in more than 40 countries and our supplier base consists of several thousand suppliers. Add the cross-functional perspective, including building an IT-liaison to a common supply chain financing platform and getting all legal documents approved and there is a lot to be taken care of. Many corporates know this and are either reluctant to allocate necessary resources or simply do not have the resources.
We’re coming from an era with inexpensive financing and the need might not have been as great. With a volatile credit market, I expect an increase in FSCM activities.
SG, Lloyds TSB They’re doing it in bite-sized chunks on a regional basis being fed into a group level. No person has overall control. It’s a combination of geographies working together. Multinationals are sourcing from new areas so they’re trying to define the supplier base more clearly and how they can move from one to the other quickly.
JL, J&W Associates Are there any lessons, in terms of what the treasurer does to get more involved?
SJ, SCF Capital Treasurers are looking at this because of the credit environment. They’re thinking about cash flow and liquidity. They’re looking at assets that are under-leveraged or under-utilized. Treasurers try to invest every dollar on the balance sheet and earn a return. On the flip side, multinationals have billions of dollars-worth of trade receivables, waiting for up to 90 days, during which time they’re not earning a return unless the 90 days includes an explicit financing charge.
JL, J&W Associates But treasury gets told it’s none of their business.
SJ, SCF Capital The tide’s changing. We’ve done a lot of work with companies that have outsourced manufacturing and distribution. No one made the decision to outsource the financing to those counterparties, because if you look at the relative creditworthiness of those supply chain partners, it doesn’t make financial sense to have, for example, a lower creditworthy contract manufacturer holding inventory for 30 days. Companies are waking up. In line with what procurement have done around strategic sourcing and moving to smaller sets of strategic suppliers to get volume leverage, they’re recognizing that they’re reliant on those suppliers. In the current credit environment, if those suppliers can’t get access to working capital to service you, then your business is at risk.
Aggression
AA, Trelleborg There is a need for a more aggressive approach from treasury. Our objective is to compensate the negative effects of increasing receivables and the costs related through maximizing our payables by introducing a FSC programme to strategic partners. This requires our treasury to be involved in day-to-day business.
CH, Lloyds TSB Although people have always known that the supply chain offered potential, there’s now real impetus to go out and capture that.
JE, Citi There are no longer the savings to be had in the physical supply chain because it’s much more efficient, so clients are looking at the financial. A client had an unhealthy key supplier critical to their ability to deliver on their contract to a key customer. So they looked at supplier finance, and that was very successful. They took that example to the CFO and suggested a more proactive approach, rather than waiting to respond to unhealthy supplier relationships. They now have sponsorship at CFO level to have supplier finance across that business division.
AA, Trelleborg The lack of liquidity and volatile credit market is doing wonders. New project team members have been assigned, more resources are being allocated, units that were uninterested are eager to get started.
JL, J&W Associates How do you manage how procurement, purchasing and sales react?
JE, Citi The CFO sponsorship drove that alignment. Then the individual units agreed the performance metrics that would serve them all in terms of DSO and DPO and DIO, and shorten their cash conversion cycle, which they agreed would have a positive impact on overall efficiency.
RD, Citi The CFO will be assigned a project, and it’ll evolve around working capital efficiency. Some companies are successfully implementing these initiatives, particularly in emerging markets, where there are liquidity constraints.
JL, J&W Associates Who makes the credit decision? Is it the FD, the corporate treasurer, or the sales people?
AA, Trelleborg I have seen cases where sales react positively to a SCF programme although the credit/risk assessors, who makes the decision regarding the credit terms, turn the programme down.
SJ, SCF Capital Sales people would love no credit limits. That’s a challenge for the credit manager who is typically measured on DSO and bad-debt write offs so is incentivized to play it safe when setting credit limits, which may then constrain sales. It’s easy for a credit manager to make DSO zero and bad debt write-offs zero but someone would notice a sharp drop in revenues!
CH, Lloyds TSB Increasing dialogue between sales and treasury through to procurement is vital.
SG, Lloyds TSB The decision is a combination of input from the treasurers and FDs fed by input from sales. It’s risk management and what can be controlled on that balance sheet. About 15 years ago, at meetings with corporates about global trade strategy and plans from an audit consultancy perspective, there was rarely somebody from treasury. More treasury representatives contribute to those discussions now.
SJ, SCF Capital Large companies have been focused on cost reduction and efficiency through global shared service centres, and the processes they’re implementing enable financial supply chain programmes to be successful, for example, e-invoicing and payment factories. Compliance is also driving this. US multinationals under Sarbanes-Oxley have had to piece together these fragmented processes.
JL, J&W Associates What’s the most effective combination of organizational responsibility structures for optimizing the physical and financial supply chain?
RD, Citi On the upstream side you need a strong partnership between procurement and finance, and systems and operations. The downstream, distribution side can be driven by both sales and finance.
CH, Lloyds TSB It’s finance-led, with clear objectives and a team agenda, with benefit shared across the organization. By pushing out days payable a company can get a cash win, but that may make life difficult for a procurement director. If some of that benefit can turn up in his P&L or his metrics the programme becomes easier. There’s got to be firm direction from finance but it needs to be a team operation.
SG, Lloyds TSB Corporates need a skill set within the treasury that recognizes the physical supply chain needs, and vice versa. Not many global procurement managers understand finances from a treasury perspective, and few people in treasury understand international trade from a holistic point of view. The financial element is only one part of the international trade issues and concerns that affect a business. The most effective combination is an integrated physical and financial supply chain.
AA, Trelleborg The areas that require most attention are: IT, legal approvals and supplier acquisitions. Each SCF programme has its own local IT representative. Legal assessments are done centrally by internal and external counsel at our HQ. Supplier acquisitions have been done in cooperation with the bank, corporate and local purchasing. All these functions have been involved from day one in the FSCM programme along with treasury. Participation has been mandatory throughout the SCF process. Tax, audit, etc have been called in when needed.
SJ, SCF Capital I’d like to see a financial supply chain council, chaired by the CFO, where representatives from each function meet regularly. Individual functions need to take a more holistic approach and recognize that when they face a particular pain point and implement a solution, how that fits in with the overall strategy.
JL, J&W Associates What are the critical elements of an optimal financial supply chain?
AA, Trelleborg There must be a commitment to eliminate inefficiencies. There must be a will to create value for all within the supply chain and not just for yourself. An example of unfortunate consequences is the automotive sector where longer payment terms dictated by powerful auto-makers and low margins have driven medium-sized companies into bankruptcy. Another critical element is optimizing the legal framework. This is especially important in countries such as China and India where balance sheet-financing mechanisms are still rare. A global banking partner is a necessity. We must have local support whether we are financing an inventory in India or running a SCF programme with suppliers in China.
RD, Citi It should use working capital efficiently, and provide visibility to all parties so they can see the benefits. Some initiatives are put in place on the back of legacy platforms and may not have all the functionalities required. Clients are looking for features to make the process more efficient, including the ability for the platform to provide dispute resolution with suppliers. It’s important that there is a process platform for the supply chain as a whole, from a service provider perspective. Corporates need more sophisticated features, more global elements. But they’re finding it more difficult to rely on legacy systems to manage flows, so they’re looking for banks and third-party companies to provide those services. Speed is also critical; speed of delivery of inventory, of goods, of information, in the acceptance process of a purchase and in the acceptance of goods by the distributor.
JL, J&W Associates Corporate treasury and finance don’t seem to recognize the range of things they need expertise in. What other elements are critical?
Critical inclusion
AA, Trelleborg It is critical that finance and treasury take part. How else will they understand the full financing needs and potential of the company?
CH, Lloyds TSB It’s down to accounting functions, payment functions, trade solutions, payment terms, managing FX, risk mitigation and how it links in with treasury management systems. What’s important is building understanding about how they fit together.
JL, J&W Associates How many levels are there in the chain?
CH, Lloyds TSB Going back one level is as ambitious as many companies get. They look at elements within the process rather than the end-to-end process. A procurement director may know the terms, but that’s not at a high enough level. He’s not got a clear view of who is financing that 90-day credit period.
SJ, SCF Capital Companies need to think multiple levels. It’s only then that you identify where the bottlenecks opportunities are.
JL, J&W Associates Who are the natural partners in optimizing your financial supply chain management?
AA, Trelleborg The bank is the fundamental partner. I do not believe an external software provider will become a strategic partner, especially since their services are very expensive. Software providers will be integrated with a bank. I am concerned that there does not seem to be a standard in terms of platforms, which could imply that many banks will develop their own, so suppliers will have to adapt to operating many different platforms.
CH, Lloyds TSB The banks are a key partner but they’re not all-encompassing. They may have gaps in geography or capabilities but those can be met through partnerships with other parties.
JL, J&W Associates How does the corporate treasurer choose the combination?
CH, Lloyds TSB Logistics companies are increasingly sophisticated in the way they work and in the level of information that they make available to the client, to banks and financing parties. There are also treasury management system operators looking at performing traditional treasury functions more efficiently, and at how that integrates with banking financing programmes.
SJ, SCF Capital Our approach would be to take corporates through their supply chains. We would put programmes together that meet their objectives. We would structure programmes that incorporate risk mitigation and liquidity. I have heard of banks that have rolled out large supplier financing programmes and then don’t have the appetite for the risk of that single buyer.
JL, J&W Associates Where do you see the balance of global versus regional partners?
AA, Trelleborg Global partnership with local presence is our aim. How do we finance an inventory in Romania for a Chinese customer without local support from our global banking partner? Ourselves and our partners must adapt to these conditions.
RD, Citi There’s also the local level to consider. China, Russia and India are large enough to be considered regions unto themselves, and are well served by large local banks. But initiatives like Sepa are having an impact on how much you need a pan-regional partner with presence in multiple European countries. Can the solution be delivered more effectively by a global or a local bank? The challenge is whether that global bank, can find a local partner. Situations are arising where more than a single bank is necessary to deliver the total balance sheet capacity for a global programme. The structuring is evolving to quasi-syndication.
CH, Lloyds TSB Our rationale is to be close to our client base, integral to the relationship, and there for the longer term. That’s what keeps our triple-A rating. We don’t pretend to be a global bank. Our strength is in being that close relationship bank.
SJ, SCF Capital Local banks have a key role, especially in the emerging markets. Understanding market conditions and the SME corporates is required if we’re going to progress in supply chain financing, which is reverse factoring. Local banks could play a role in leveraging a large corporate’s creditworthiness, looking forward in the supply chain, looking at the portfolios of their semi-corporates, layering trade credit insurance and structuring programmes.
JL, J&W Associates What combination of partners is appropriate?
AA, Trelleborg A global bank that can provide local services. Our operations are off the African coast, in China, in India, in Russia. Our suppliers and customers are located in these areas and so must the bank be. In the emerging markets I see some benefit in working with a local bank. However, this must be in cooperation with global partners. Also bear in mind what is being financed? Is it inventory, transfer of receivables, supplier financing, shipped goods? This will affect which partners are involved.
JL, J&W Associates What cash management models are driving the need for efficiency in the financial supply chain?
SG, Lloyds TSB There’s a trend to move from more structured letters of credit to open account trading.
JL, J&W Associates Why is this happening? Open account, by definition, needs more trust.
SG, Lloyds TSB The more developed companies have an established network of suppliers, and the collaboration through their tier-1 supplier has resulted in moving off more expensive traditional trade instruments. Emphasis is placed on open account trading, but emerging markets are coming through where traditional instruments are still required. Many companies have jumped on the open account bandwagon, only to find that they need to underpin an open account transaction with some form of guarantee.
JE, Citi Companies want global visibility, information and control, so they can mobilize liquidity across the world through pool structures or target balancing or cross-regional sweeps. When they have access to the liquidity, they need to deploy it in the right way, whether it’s paying off debt or investing, because they’re looking to recycle currency in-house before they look externally. Also the second- and third-generation shared-service centres are looking to carve out even more savings. So they’re linking in to treasuries and in-house banks to drive greater efficiencies. New standards like Swiftnet and XML and the introduction of e-invoicing and card applications are bringing efficiencies in cash management, which then offer opportunities to gain further efficiencies.
SJ, SCF Capital As companies reach maturity levels of STP they are realizing that the remaining process bottlenecks are related to the lack of automation of trade data exchange between buyers and sellers, such as e-invoicing. As companies focus on those areas, driven by cost-reduction priorities, they focus on the value-add opportunities that automation in those processes might enable.
RD, Citi On the downstream side there are distribution hubs popping up in key geographies like Dubai, South Africa and other areas that have free-trade zones. Up to 90% of global flows are on open account, and much of that has been driven by distribution hubs and shared service centres. Although it’s easy to have an inter-company flow on open account, many corporates are also clear that as their credit standing is solid they should not have to raise a letter of credit to import goods. However, that leaves the small exporter in a tight situation with financing. Cross-border supplier finance programmes are a replacement for the risk mitigation and financial acceleration that an LC and a discount under an LC provided.
JL, J&W Associates Does this consolidation, and the introduction of distribution hubs, change the cash management model?
CH, Lloyds TSB It puts the financial supply chain on the agenda. There’s that quest for greater visibility, wanting to manage payment and receipt flows on a global basis, and maximize benefit of cash against offset. So it’s that core cash management solution. Is that driving changes in payment terms? I’m not sure, and nor is it changing the business model. The pendulum is swinging back and we’re seeing greater demands for payment security and balance sheet management.
SG, Lloyds TSB The banks are behind the curve in providing solutions for the corporates, though. Corporates have been spoilt by the financial-supply-chain side, because they’re way ahead in terms of electronic solutions. The banks have to catch up.
RD, Citi A lot of the innovation and development has taken place in the third-party provider sector. They’re putting solutions in front of clients that are piquing their interest. The banks need to develop similar solutions and some have started to capitalize on what’s already being offered by third-party providers through alliances and acquisitions with the survivors.
JE, Citi Banks are collaborating more because of Swiftnet and multi-bank solutions. Applying Swift standards and multibank solutions, you can use one bank for collections and have it automatically transferred to your liquidity bank. Digital identity is coming in, another example of banks cooperating to support clients’ activity. You see banks in a cooperative model trying to help build standards and efficiency for corporate clients.
JL, J&W Associates What do you see as changes in the business model and the cash management model?
AA, Trelleborg Since business frontiers have expanded with increased procurement and sales in the emerging markets, strains on the balance sheet have increased, thus escalating needs for financing around global transactions. There is a higher consciousness of financial supply chain inefficiencies. We see increased numbers of currencies in day-to-day business and more FX activities. Globalization has led to increased workloads on finance and treasury functions – hence these departments are growing.
Globalization is a key factor in shifting business models. One change is the transfer in decision-making from central to local managers with support instead of commands from central and corporate functions. Financing and treasury presence in day-to-day operations is increasing and becoming more linked to the local transactions. In other words, treasury and cash management are decentralizing.
Business models are becoming more regional. Support hubs with functions such as treasury including cash pools, purchasing and marketing are being launched to support local business.
Effective programme
JL, J&W Associates What makes an effective supplier-financing programme?
CH, Lloyds TSB You need commitment within the buying organization at a high level. You need good resourcing and great communication, because it’s a time-intensive programme to help a 1,000 suppliers understand the message. There are different ways of communicating. Tier-1 companies need face-to-face communication, maybe even one-to-one. With others you can do it within a group, but you need to be specific about the appropriate way to communicate. When they start to understand, the take-up can be strong.
AA, Trelleborg From the buyer side you need: commitment and buy-in from top management along with procurement and IT; good understanding of internal procedures, efficient routines and up-to-date IT processes; and clear messages and strong communication links and a positive attitude to change. From the bank you need: a solid IT platform, local support, well-balanced legal documents, reasonable pricing and efficient administration. The last three are bottlenecks in expansion.
JL, J&W Associates Is understanding one of the major problems?
CH, Lloyds TSB You have to get beyond ‘where’s the catch?’ Whether they’re suppliers or buyers, they recognize the value. If you offer a supplier an additional source of working capital that will be more cost-effective, that can be available in 10 days compared with 90, it’s obviously attractive. But they want to know where the catch is. That’s a process of communication because there isn’t one.
RD, Citi Part of the challenge is finding the right pricing point for the suppliers, even for different categories of suppliers, and giving them value that will convince them to forgo existing sources of financing. These suppliers have been managing without these programmes, so to drop a programme in, overlay it and expect immediate adoption from the supplier base is unrealistic.
JL, J&W Associates What sort of numbers can you expect? If I’ve got 1,000 suppliers, what proportion would I expect to come on quickly and how many would take longer?
AA, Trelleborg Our figures show 60% adoption rate (75% of these joined immediately and the rest needed further convincing).
Suppliers more likely to join a FSCM programme are: private equity-owned suppliers; small businesses with weak credit ratings; companies in cashflow-scarce industries; corporates with high XWC attention and suppliers who view the buyer as a strategic partner.
RD, Citi A rigorous analysis of the supplier base is needed before you can roll out a programme that fulfils the expectations of the corporate and the bank. If you go through that, you should have a healthy adoption. More than 60% would be considered successful. In some markets we can get as much as 100% adoption rates by targeted suppliers, but a lot depends on the scarcity of capital in that particular market.
CH, Lloyds TSB Supplier take-up is important but it’s not the only indicator of success. If a buyer’s able to push out days payable there’s a cash win. At that point it potentially doesn’t matter if no suppliers take up. They’ve got that gain. The trick to achieving a true win/win status is a programme that gives buyers a strong cash win but at the same time is an alternative source of additional cash for suppliers. This creates value for them and for the banks.
JL, J&W Associates In financial supply chain efficiency, where are the other opportunities?
JE, Citi If you automate the financial supply chain, you can replace paper with electronic exchange, like e-invoicing. You can take advantage of early payment discounts, and effect the payments electronically through low-cost, low-value clearing. We have Sepa. We have UK Faster Payments. We have the American ACH. That cuts your cost of payments and allows you to take advantage of a discount. And maybe where there isn’t the opportunity of early payment discount, you can put the spend on a procurement card – centralize the spend to gain more negotiating power with your suppliers and to gain financial incentives.
JL, J&W Associates But there are few instruments in terms of changing the financing of the supply chain.
SG, Lloyds TSB There’s a lot in development. It’s as much a learning curve for banks as corporates. Leveraging from the strength of the buyer credit ratings and supplying, then providing the finance on the strength of that, are all evolving discussions. There are legal issues around how you take a credit rating that is potentially the stronger rating of the large buyer, and use that as a way of providing finance against that purchase order.
SJ, SCF Capital One area we have focused on is trade credit insurance. Approximately 35% of corporates in Europe credit insure their receivables yet only about 5% then leverage their credit-enhanced receivables portfolio by financing it. There’s a missed opportunity there. The reason why banks’ credit committees don’t give full credit for an insured receivable is because insurance is not unconditional. It only covers undisputed invoices and you have to prove compliance with all the terms and conditions of the policy to be paid out. There is a lack of visibility for most companies around compliance, but if you can control that then there are opportunities to structure supply chain finance solutions that leverage the credit insurer’s rating. For lower creditworthy distributors in emerging market countries, this could be a good solution.
JL, J&W Associates You need the technology to support that.
SG, Lloyds TSB You do, and there are systems in development or that have been customized. People are trying to understand the risk related to new ways of providing that finance. The point of getting involved is to provide more real-time structured financing. It may be while the goods are in transit, or inventory when it reaches the factory gate. You can start breaking it down. If your system gives you visibility into that client’s transaction, you are able to manage that, which is also managing the risk.
JL, J&W Associates What else should finance directors and corporate treasurers be thinking of?
CH, Lloyds TSB It comes back to understanding the cycle and where you can intermediate. How you develop a vendor finance programme will differ in each case. With inventory or stock finance, the circumstances will differ. You hear so much about supplier finance because everybody’s taken the cookie-cutter approach. Many players are trying to make it a highly scalable business. There’s a lot of competition, and customers are finding value in more tailored solutions. This may be in an emerging market, with regard to a specific flow, or during a season where they’re trying to aggregate a commodity product to leverage the pricing point. Having the speed to be able to implement that in time to take advantage is where there’s value. It is meeting a need as opposed to a strategic initiative. It’s structuring solutions as opposed to selling a product.
JL, J&W Associates Philips has developed financing in India to help people to buy their products. So they’re financing the end of the chain to be able to generate manufacturing capacity. That example takes us beyond what treasury normally does but it creates business. Are there other examples?
RD, Citi There are other opportunities closer to the banks’ comfort zones, including financing distributors, which is a need for corporates that are distributing product across geographies. It may be from one of these regional distribution hubs or from local manufacturing and distribution sites in the larger markets. They are looking for solutions that can help increase sales through assessing and providing credit capacity to the distribution chain.
AA, Trelleborg Increased business in emerging markets calls for more sophisticated financing tools. There are still opportunities such as financing LCs, running supplier financing programmes, which alleviated the financial burden on partners in the supply chain. We offer suppliers an opportunity to join our supplier financing programme, thus liberating funds they need to expand their business. We’re moving east and our suppliers must follow us and subsequently they need liquidity.
JL, J&W Associates This is where I get excited about supply chain management, because it’s interacting with the physical supply chain, expanding it and creating new business.
SG, Lloyds TSB It is always going to be customized. The financing may be two steps removed from the product or need. Upstream, you may feel that you need to provide financing to the raw material, because that’s where the bottleneck can occur. There’s the forecasting aspect. If there was better forecasting you could have better risk management.
JL, J&W Associates What would be your top operational efficiency improvements in the financial supply chain?
JE, Citi It’s bringing data aggregation, analytics and forecasting together. You need technology to achieve that, and Swift plays a big part. Banks will need to not only supply end-of-day information but increasingly intra-day information, so companies have more real-time access and control using Swift standards to transact with that information and deploy liquidity where that’s needed.
JL, J&W Associates Vodafone and GE use Swift to do real-time foreign exchange. Are there examples in the financial supply chain where better connectivity improves trade efficiency?
JE, Citi Yes, but that visibility is critical. Companies are consolidating bank relationships and bank accounts but equally are challenged to consolidate to a single global bank. We’re operating in a multiple bank environment. Although a Swift standard is not a commodity, banks can wrap value-added services around it, and allow them to have independence and global transparency, and act on the information they receive. That visibility can bring benefits to the financial supply chain and how they deploy it. You need to take a holistic view of your payment activity.
SG, Lloyds TSB It’s about having flexibility in your solutions, and having construction and translation tables and mappers that can receive and deliver in whatever the standard may be. Integration is key. Our competitive advantage is on what we put on the front end, and the challenges are there.
JL, J&W Associates What is value added in this context of operational and financial efficiency?
CH, Lloyds TSB Anything that makes life easier for corporates is value added, and if they’re charged for that it’s still value for money. Many treasuries are small. There may be lots of opportunities and programmes they can run, but they haven’t got the resources. So there is value in providing them with solutions, and it’s value that corporates will pay for.
JL, J&W Associates What do you consider the biggest opportunities for improving the financing and operational efficiency?
AA, Trelleborg Running a supplier financing programme to its full extent. Also increasing efficiency in purchasing processes and sourcing from local markets are potentially good opportunities. Operations must become leaner, more precise and less inefficient. This includes unlocking assets tied up in transport.
JL, J&W Associates What new financial supply chain models are there?
RD, Citi Many networks are associated with banks, but the private networks are looking for partners to provide financing for those flows. Corporates are developing networks in addition to those at the entrepreneurial end. Corporates should work closely with their trusted adviser to determine what is best for them. Corporates are looking for an open environment because they want to provide financing to that flow and they understand that even the most global banks might not be present in every country. That’s where the concept of a bank delivering a solution in partnership with other finance providers comes in.
SG, Lloyds TSB Security is a huge issue but there is no single global legislation that covers the security initiatives. Corporates have to adopt a range of security initiatives. That is a headache. Who is going to provide them with the tools? It’s a cost. And this is where I question the role of the banks. Can we operate as the honest broker, the trusted adviser? Is that the way the corporate would see us? It’s a hard sell to go to a corporate and offer the solution because they would ultimately look to their bank. The bank can adopt a solution or build their own because they don’t care where it comes from as long as it’s got the functionality. The corporates would look to the banks, because that’s where their relationship is, where the risk management aspect is, and hopefully it’s the trusted party.
RD, CitiThere are also regulatory considerations, particularly as these solutions evolve beyond the information to the financing. There are currency restrictions and other regulations that impact and sometimes impair initiatives, particularly in places like China and Russia. These should be on the financial director’s radar screen. The corporate will need to be more receptive to allow relationship banks or trusted advisers to enter into partnerships.
Better results
JE, Citi The finance director should not underestimate the impact of operational efficiencies on financial performance, and even shareholder value. These FSM roles may be the catalyst or the change agent to cut across functions. The changing liquidity environment creates the urgency, and financial metrics have track records to show that the companies that manage their financial supply chain and working capital better have better operating results.
CH, Lloyds TSB Finance directors should be thinking about scrutiny from analysts. Financial supply chains or physical supply chains are a core element of any business, and the financial teams are not managing that as effectively as the market thinks they should. That comes under scrutiny more when credit is a scarcity and you’re not fulfilling your obligations to shareholders.
SJ, SCF Capital We need solutions that allow credit capacity to be distributed and managed on a more real-time, dynamic basis.
JL, J&W Associates The emphasis is on cashflow rather than the balance sheet. If the finance director had to do one thing now, what should that be?
AA, Trelleborg Conduct a thorough supply chain assessment and include analysis on the asset side of the balance sheet. Do what you can, and be bold. Operationally, stronger focus on procurement and related processes is vital.
CH, Lloyds TSB Demand a financial supply chain plan.
SG, Lloyds TSB Define what your supply chain is and which core elements need attention, financial and physical.
JE, Citi Look at global procurement and don’t underestimate the impact of operational efficiency.
RD, Citi Identify a project champion as well as low-hanging fruit for a pilot to provide a proof-of-concept and guidance to the organization. Also, there’s value on the down-stream or distribution side of the production cycle that can be realized quickly.