“It’s the layer atop the physical supply chain,” explains Michael Sugirin, Americas product specialist for financial supply chain management, global transaction banking, with Frankfurt-based Deutsche Bank (US$1.3 trillion in assets). “It spans the planning and execution of payments between trading partners, whether they’re the buyer or a supplier managing cash flow, working capital and key risk factors.”
“It’s visibility into the movement of information that has a financial impact across all the participants in a supply chain so that informed decisions can be made efficiently,” adds La Hulpe, Belgium-based SWIFT’s Christopher Conn, regional solutions manager, supply chain services, North America, banking industry division. “There are a lot of parallels between the physical and financial supply chain. You’re creating synergies by combining all this information into one service set.”
Financial supply chain management also is a means to further eliminate paper from the world of international trade. “A lot of these payments are still done with paper, in addition to the paper that follows these transactions around,” explains Richard Winston, director of payments and processing for North America financial services at Accenture (Chicago). “Automation stops at the interface point between counterparties. Corporates want an electronic facilitation of the process so you can use imaging and workflow engines, not paper and checks.”
Once again, banks are being driven to reevaluate some long-established paper-based processes to make life easier for their clients. “The goal is to create benefits for corporates around operational efficiency and working capital management,” says Tim House, director, global supply chain strategy, for Charlotte, N.C.-based Wachovia ($700 billion in assets). “You want to give them the ability to squeeze more cash out of their supply chain.” Of course, when the paper is cut out of the process, so too is a good deal of cost, relates National City’s (Cleveland; $140 billion in assets) Craig Schurr, SVP, global trade and treasury. “There’s a cost every time someone makes a payment,” Schurr comments. “There are costs for the whole trade cycle. The current thinking [among banks] is to find ways to drive that cost to the lowest point possible for clients.”
And beyond the financing costs, continues Schurr, is the cost associated with the transport of physical paper in the trade process. “With international trade, there’s a documentary/paper component that involves the movement of paper among couriers,” he says.
By employing imaging technology, banks such as National City are attempting to capture the paper at the earliest point possible in the process in an attempt to cut out one of the middlemen — in this case, the courier service. “We capture an image of the documents at our Hong Kong partner, for example, and make that available to the buyer in the U.S. so the purchase order information can be viewed as it becomes available,” relates Schurr. According to Wachovia’s Chris Ward, SVP and manager, payables and receivables solutions, this kind of real-time, actionable data availability is just what banks’ corporate clients desire. “Our customers are driving toward speeding up their supply chains to get more transparency and visibility into them,” he says.
“Payments are key to understanding what’s going on in the financial supply chain.” Corporate treasurers are keen on this because, traditionally, a lot of the processes have been very manual. They want to digitize trade information so they can more aggressively handle their business. Banks want to provide this real-time synchronicity to their clients.
The idea behind real-time insight into the supply chain is that if companies can keep tabs on the various trade transactions as they occur, they would have a better opportunity to move money around and generally make more-proactive business decisions, according to Ward. Part of financial supply chain management involves banks more intimately linking their systems with the enterprise resource planning (ERP) systems of their corporate clients in order to provide certain just-in-time services, according to SWIFT’s Conn.
Annette Hazapis, SVP, director, product management, global treasury management, at Cleveland-based KeyBank ($95 billion in assets) adds that the closer bank-client interaction enabled by financial supply chain management is yet another relationship-building opportunity for financial institutions. Those banks that are getting the picture early on already are making inroads on the international trade space for their clients and clients’ partners. For years, buyers and sellers paid for goods using letters of credit, where the bank would authorize the seller to draw drafts on a predetermined amount on the buyer’s behalf. And a level of risk is introduced into the transaction, particularly for the seller, because the goods ship with just the buyer’s assurance that it will pay, explains SWIFT’s Conn. But banks are wending their way into the open account process, he adds, eliminating some of the risk introduced with this method of payment by providing new supply chain services based on specific transaction flows.
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