- The financial supply chain is less efficient than the physical supply chain
- Improve visibility to improve forecasting and planning
- Collaborative platforms provide visibility for buyers and suppliers and allows for quick resolution of disputes
- The ability to tie the financial process to what’s actually happening in the physical supply chain can open up opportunities for buyers, sellers and banks
Companies are leaving millions of dollars on the table because of inefficiencies in the financial supply chain while the physical supply chain has evolved more efficiently. Is it time to marry the physical supply chain to the financial supply chain to improve the situation? Supply & Demand Chain Executive recently discussed this complex issue with experts in the field.
One key solution, experts agree, is to improve visibility into the supply chain, which will allow businesses to improve forecasting and planning. Companies need timely, cleansed data coming from their trading partners. If logistics providers and financial services firms can provide substantial visibility into the physical and financial supply chains, their clients will be able to make well-educated decisions.
It is a given, however, that the financial supply chain is less efficient than the physical supply chain. From 1960 to 2000, the physical supply processes of ordering and delivery have shortened from 20-plus days to the same day, according to Kurt Schneiber, CEO of Minneapolis-based Syncada. “The supporting financial processes have not been optimized during the same time period,” he says. “Invoice processing and payment times have remained the same, lingering between 45 and 60 days on average.”
Ask yourself this
Exacerbating the situation is a lengthening of the physical supply chain (shipping longer distances) and associated higher costs, says Bob Heaney, senior research analyst, supply chain management, Aberdeen Group in Boston. At the same time, oil prices are skyrocketing, which creates a double whammy: greater distance and higher fuel surcharge. “Many companies are relying on outside experts, so they can track what is happening in this extended supply chain,” he notes. “This poses a big challenge and opportunity for companies trying to make a profit in today’s business environment.”
From a financial standpoint, Heaney adds, supply chain executives need to ask themselves the following questions: Do we have timely, cleansed data coming from our trading partners? Is that integrated into our data system so we can truly see what is happening from a planning and execution standpoint? Do we know what our margins will be on imported products? Exactly where are our products in the supply chain?
According to Schneiber, optimization is the key. “Without optimization, which usually means automation, it’s difficult to reap the full benefits of supply chain finance on a large scale,” he explains. “While supply chain financing can occur without the use of technology, there is a growing trend toward accessing supply chain financing as part of an overall automated solution.” If the time between invoicing and payment can be shortened via automation, he adds, there is an even stronger value proposition for supply chain financing because suppliers can gain the benefit of getting cash quickly to redeploy into their businesses.
On the positive side, the financial supply chain is making adjustments to these new global processes, experts agree. But is the pace fast enough? “Financial supply chains (FSCs) are evolving, but not as quickly as advances in the physical supply chain,” says Nathan Pieri, senior vice president of marketing and product management at East Rutherford, N.J.-based Management Dynamics. “As barriers continue to fall, however, convergence of financial and physical supply chains will become more prevalent.”