Trading Technology

04:25 PM
Maria Bruno-Britz
Maria Bruno-Britz
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FSIs Starting to Embrace Concept of Financial Supply Chain Management

Globalization is driving firms to examine new ways to cater to corporate clients, including financial supply chain management.

It was the talk of the town at the October 2006 Sibos conference in Sydney. Yet beyond payments circles, few in the financial services industry may actually know what financial supply chain management is. But all that is about to change, according to insiders, as the concept rapidly becomes the norm among banks that wish to maintain a foothold in an increasingly globalized world where their clients' business dealings expand across borders and time zones.

Financial supply chain management is an outgrowth of the long-established concept of the physical supply chain in the trade business. Rather than dealing solely with the actual physical/logistical aspects of trade, however, financial supply chain management, as the name implies, covers the payments side of trade, from the moment a purchase order is cut, to the time of settlement and everything in between.

"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. This is very powerful for corporates."

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. And this greater visibility into transactions benefits banks as well, he notes. "An opportunity exists to leverage event triggers within a transaction to offer more-timely and better financing," says Ward.

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