Large global multinational companies continue to improve their strategies for managing working capital and always are seeking new ways to more efficiently manage the flow of funds through the entire company. Getting a handle on the supply chain has become a great way to help get this done. And the concept of supply chain finance, although not a new concept, has been gaining attention a lot of attention in this regard.
SCF has become a practical way for banks to meet buyers’ and suppliers’ liquidity needs, particularly within a tighter regulatory framework. This is taking a holistic view, where every link in the supply chain is not only interconnected, but has a stake in making sure all links succeed. Indeed, large corporates have come to view the financial health of their strategic partners as a primary operational risk and view the implementation of a supply chain finance program as a competitive tool to offer to their best clients (while at the same time of improving their own liquidity by delaying payment to these same suppliers as long as reasonably possible). In one banker’s view, companies “have gotten religion” about SCF’s relationship with working capital.
Automation is a growing part of this configuration. And that’s mainly because supply chains have stretched across the globe, often beyond the reach of conventional tech. “There was a time not too long ago when it was sufficient for businesses to simply monitor their own suppliers,” writes Sundar Kamakshisundaram, VP of Solutions Marketing at SAP’s Ariba in a recent blog post. “But as supply chains have become longer and more global, now businesses must keep tabs on their supplier’s suppliers as well.”
Thus the fully integrated working-capital platform has been evolving rapidly. In some ways it represents the ultimate holy grail of supply chain finance. With this model, all pieces of an organization’s financial supply system could be fully automated, including the buyers’ procure-to-pay and the suppliers’ order-to-cash cycles. The full integration of procurement, invoicing and financing within a single platform would provide the highest level of automation and process efficiency. This solution would take straight-through-processing to a higher level.
According to Mr. Kamakshisundaram, effectively managing this complex supply network requires three things:
(1)The ability to predict the future with accuracy – leveraging input from real-time market dynamics and historical market trends from a network of partners and peers; (2) The competency to assess a myriad of potential actions and identify those with the highest propensity for success – based on analyzing the actions and results of other enterprises or individuals that were exposed to similar conditions in the past; and (3) the flexibility to quickly act to capitalize on these predictions – by rapidly adapting businesses processes to execute the optimal action in advance of market changes or the competition.
Mr. Kamakshisundaram adds that it will take a mastery of new types of technology to gain control of the more complex supply chain, including leveraging the cloud, social media and business networking as well as “the power and speed of in-memory database and analytics.”
With the help solid technology, a effective supply chain finance program can ultimately prove to be a win/win/win for the buyer, the seller and the participating bank, with each participant seeing significant improvements in cost and processing efficiencies. The added benefit it that it could also help you stay out of trouble with regulators, too.
Editor’s Note: Supply chain finance will be one of the topics of discussion at the SAP Conference for Treasury Management 2014, October 21–23, 2014 in Chicago.