Still, challenges exist. Pieri says today’s FSC typically lacks true operational insight to a supply base; the ability to automatically reconcile transactions; and the ability to fine-tune credit decisions based on expanded risk metrics.
Is it time to marry the physical supply chain to the financial supply chain? Yes, experts agree, but few companies have truly achieved this. 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. Historically, though, it has been hard for companies to get a reliable view into the movement of goods, the chain of custody and the commercial documents that are generated along the way.
One solution lies in advanced global trade management (GTM) platforms that can power FSC for financial institutions and corporations alike, according to Pieri. “Integration of GTM solutions helps automate the reconciliation process and eliminates the need to express mail documents, thus increasing data accuracy and improving cash cycle times,” he says. “GTM also helps manage risk by better forecasting potential issues with the addition and analysis of operational metrics.”
Most buyers view payment as a fulfillment of an obligation, adds Schneiber, but by automating the FSC and offering supply chain financing, buying organizations can be more strategic with their payments. “The payment becomes a way to maintain a healthy supply chain by providing suppliers with access to liquidity while still maintaining days-payable outstanding for the buyer. It’s a more collaborative model,” he notes.
Of utmost importance is the ability to provide information/visibility into the disposition of goods, or the ability to “see” where goods are at any point in the supply chain. “There is an opportunity to drive down costs through better visibility and control in the supply chain,” says Greg Kefer, director of corporate marketing, GT Nexus in Oakland, Calif. “Many companies still use costly financing mechanisms such as letters of credit because they don’t have the level of information control necessary to move to an open account model.”
C.J. Wimley, executive vice president, corporate solutions, SunGard’s AvantGard Corp. in New York City, says that corporations must reduce the friction that currently exists in many financial supply chains in order to facilitate the timely flow of information. Up-to-date and accurate information allows a corporation to more fully understand its cash flow and to execute initiatives such as alternative financing, foreign exchange hedging and risk management with more confidence, he notes.
Enter the Cloud
As for merging the physical and financial supply chains, the logistics side of the operation already has much of the information needed to do innovative things on the financing side, says Kefer, but this requires a platform that is capable of tracking inventory movement and related documentation across every stage of the global supply chain. “That’s hard to do, but increasingly possible with modern Cloud-based supply chain technology platforms,” he explains.
Kefer says this involves creating a new, more efficient business model: Cloud supply chain platforms that deliver a level of visibility not achievable with traditional software. “Traditional business software is designed to automate processes within a single company, not between companies. Cloud inverts the traditional model by placing a platform outside a company’s ‘four walls’ where all supply chain partners can link to and share. Like Facebook, it puts everybody on the same information page.”
According to John Sicard, chief operating officer, Kinaxis in Ottawa, Canada, profitability management must become a priority for every part of the operation—not just for finance. Multiple functions must be able to model costs across various dimensions to enable real-time profitability management. “By running ‘what-if’ scenarios using real operational data, key stakeholders can understand the financial implications of supply and demand changes both before and when they happen,” he says. “Companies that adopt an operational control tower model, which integrates multiple business processes with supply chain operations, will be able to instantaneously analyze the financial effects when reality deviates from the plan.”