Global Head of Transaction Banking, Standard Chartered
Most multinational corporations (MNCs) have developed their supply chain operating models to support multi-channel sales and distribution, and optimise production costs, capacity and lead times.
As companies expand their business globally, their buy-sell relationships and supply chains often become increasingly intertwined, leading to complexity and lack of transparency.
In this environment, many corporates are seeking to increase visibility and confidence in the supply chain to adapt quickly and precisely to variations in demand, streamline the exchange of value throughout the ecosystem and ultimately facilitate growth.
The supply chain spectrum
A characteristic of global corporations’ supply chains is the diversity of business partnerships, from strategic and preferred suppliers at one end, to large national or regional distributors, sales agents, dealers, resellers and “mom and pop” retailers at the other.
Every connection is critical to the whole supply chain, so a delay or break at any point potentially interrupts production or results in a short-term funding gap. As a result, corporates have started looking beyond their organisational boundaries and evaluating whether their ecosystem is fit for purpose and equipped to meet growth challenges.
Some corporations started using advanced analytics to monitor or even forecast their buyer and supplier performance to negotiate better commercial terms or predict downstream stock levels. Others are working to address the financing needs of their small and medium-sized (SME) buyers and suppliers through bespoke supply chain finance programmes.
According to ADB’s “2016 Trade Finance Gaps, Growth, and Jobs Survey”, 56% of SME trade finance proposals are rejected whereas MNCs are only rejected 10% of the time, indicating how this SME segment is significantly under-served.
An ecosystem-based approach
There are various reasons for this. For example, most global banks restrict their target customer base outside their home market to MNCs. Banks that support a wider spectrum of customers, such as regional and local banks, typically lack the network to serve a global supply chain.
Besides, banks are often organised into silos to support different customer segments: SME customers are typically supported through commercial or retail banking divisions, while larger customers’ needs are managed through corporate & institutional banking, therefore creating a disconnect.
Even popular supply chain finance techniques, such as post-shipment financing (or supplier financing) are still focused on the large corporate’s needs, so banks’ engagement with suppliers is mainly to onboard them to the programme, rather than working with them to understand their supply chain and financing needs, how their growth is linked to that of their customer and devising solutions accordingly.
At Standard Chartered, we are uniquely equipped to drive a new generation of banking that encompasses the entire ecosystem rather than simply single points in the supply chain. We bring together our corporate & institutional, commercial and retail divisions to engage our customer’s ecosystem on an integrated basis.
We are developing solutions that address the transactional, financial and informational needs of our customers and their ecosystems in this evolving market place. We deep dive into our customers’ supply chain, understand their pain points and co-develop optimal solutions.
The ecosystem in practice
For instance, a large manufacturer looking to expand production may be hindered due to constraints in key suppliers’ production capacity. It is more difficult and costly for some of these suppliers to access financing on their own compared with the large corporation they supply. These costs are then passed on to the manufacturer, resulting in lower margins.
Furthermore, the solutions available to these suppliers are typically limited to vanilla post-shipment finance. By taking an ecosystem approach, these obstacles to growth can be removed, allowing banks to go beyond traditional post-shipment finance to offer best-fit banking solutions.
Banking the ecosystem also means embracing supply chain complexity in different ways. On the supplier side, the flow and frequency of transactions between suppliers and their core customers can be far more complicated than simply issuing a purchase order, delivering goods and sending an invoice. For example, an auto manufacturer needs its suppliers to produce components to meet existing demands as well as unconfirmed future demand of a new model.
These forecasts change over time and new orders keep coming in, making it difficult to reconcile production needs down to individual purchase orders, which are typically the basis on which traditional invoice or pre-invoice financing takes place.
On the sales side, as companies’ sales and distribution models become more agile, credit and working capital dynamics change. If a distributor’s credit line is fully utilised, this distributor cannot do more business, which in turn hampers growth. It is crucial for banks to understand the root cause of such a scenario before proposing any solutions.
The answer could be that the company needs to automate real-time collection reconciliation in their ERP system or that the distributor has some short-term working capital burden. When we pay more attention to underlying business requirements, we can facilitate more business.
Positioning for growth
As each market and industry continue on their economic journeys, and commercial models evolve in line with new technologies and customer expectations, clients’ ecosystems will need to adapt.
Few banks are in a position to offer the depth of local expertise, the breadth of solutions and the spectrum of relationships across all sizes of businesses that Standard Chartered provides. Taking an ecosystem approach to banking services reinforces our commitment and responsibility as a bank to facilitate trade, commerce and investment, and connect business communities.
Euromoney and Standard Chartered will be running a series of webinars on debt capital markets. The first one will be on ‘Investing China: CGB futures and the Bond Connect’ on May 15. Find out more
This material has been prepared by Standard Chartered Bank (SCB), a firm authorised by the United Kingdom’s Prudential Regulation Authority and regulated by the United Kingdom’s Financial Conduct Authority and Prudential Regulation Authority. It is not independent research material. This material has been produced for information and discussion purposes only and does not constitute advice or an invitation or recommendation to enter into any transaction.
Some of the information appearing herein may have been obtained from public sources and while SCB believes such information to be reliable, it has not been independently verified by SCB. Information contained herein is subject to change without notice. Any opinions or views of third parties expressed in this material are those of the third parties identified, and not of SCB or its affiliates.
SCB does not provide accounting, legal, regulatory or tax advice. This material does not provide any investment advice. While all reasonable care has been taken in preparing this material, SCB and its affiliates make no representation or warranty as to its accuracy or completeness, and no responsibility or liability is accepted for any errors of fact, omission or for any opinion expressed herein. You are advised to exercise your own independent judgment (with the advice of your professional advisers as necessary) with respect to the risks and consequences of any matter contained herein. SCB and its affiliates expressly disclaim any liability and responsibility for any damage or losses you may suffer from your use of or reliance on this material.
SCB or its affiliates may not have the necessary licenses to provide services or offer products in all countries or such provision of services or offering of products may be subject to the regulatory requirements of each jurisdiction. This material is not for distribution to any person to which, or any jurisdiction in which, its distribution would be prohibited.
You may wish to refer to the incorporation details of Standard Chartered PLC, Standard Chartered Bank and their subsidiaries athttp://www.standardchartered.com/en/incorporation-details.html.
© Copyright 2017 Standard Chartered Bank. All rights reserved. All copyrights subsisting and arising out of these materials belong to Standard Chartered Bank and may not be reproduced, distributed, amended, modified, adapted, transmitted in any form, or translated in any way without the prior written consent of Standard Chartered Bank