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Opinion

Financial supply chain debate: Cash is still king

Companies with optimized financial supply chains have 30% to 35% better market capitalization than companies that haven’t. However, forging the links between treasury and operational departments is hard, particularly as supply chains enlarge and globalize.

Financial supply chain debate: Participants

JL, J&W What do you include in the financial supply chain, what are your key drivers and objectives and why should we look at this now?

SH, Flextronics The key objective is still working capital management. The rating agencies and investors are increasingly focused on cash on the balance sheet, so the cash-cycle day is key. Most corporates are relatively advanced in their strategy as concerns the customer, and that includes asset-backed securitizations, factoring and accounts receivable sales. Where they have been slower to adapt has been on the supply side. From most multinationals’ perspective, that means reverse factoring and inventory financing. Effectively, if you believe you don’t need credit facilities, but do need liquidity provision, you’re trying to pass that liquidity provision on to your supplier base. Through strategic financial partners you use your large supplier base to take advantage of the cash in the system. It’s a good time for companies to focus on this because the banks want to leverage off their very wide customer base. They realize that there are some very good cross-sell opportunities there. Pricing has tightened, but it’s still very good. As the footprint of multinationals becomes more global, the supplier base is increasingly diversifying. In my industry, as we chase lower-cost manufacturing climates, so our supply base has increased sixfold. This needs to be addressed.

BD, ABN Amro Defining this business is hard. Banks try to capture the end to end – importer-buyer/exporter-vendor. But that relationship contains many components, as there is a range of banking products that marry the physical and the financial supply chains, and there isn’t a common template at this stage. Now is a good time for bankers because that’s what the client base is calling for. Also the connectivity on the physical side has become much improved through technology. In order to assess risk you need information and data-flows, and an increasing part of this is inventory management. Steve says his supplier base is expanding but equally some companies are whittling down theirs – selecting strategic suppliers on which they depend, and maintaining fewer in number that are needed occasionally.

SH, Flextronics Typically, in our space the customer designates the suppliers. To keep the cost base low enough to satisfy customers, you have to use a locally sourced supplier base. In the past, a company such as Flextronics would have used a global supply base of 15 key suppliers located in a small number of high-cost developed markets. That is not sustainable today and companies have to use more suppliers in more markets. This is changing the way we finance and arrange the business. We need more global financial service provision to a wider supply chain, and the banks need to involve some of the smaller local players in their direct client approach portfolio. The banks must follow us to the lower-cost production environments.

SJ, Hewlett-Packard I define the financial supply chain as the order-to-cash: procurement-to-pay, end-to-end business processes and beyond into financing. We’ve spent a lot of time and energy moving our business processes to low-cost locations. But now we’re seeing salary inflation in some of these, and that’s forcing us to look for the root causes of business process inefficiencies. We’ve also put a lot of effort into ensuring that we have end-to-end efficiency in our internal business processes with the deployment of applications like SAP, for example. Beyond that, you look for savings in the way in which you deal with your customer and supplier base. HP has customers in the enterprise, SME and consumer space, and we have multiple business models. Banks are under huge regulatory pressure and are looking for areas where they can add value to their client base. Both corporates and banks are beginning to see that facilitating and financing the supply chain is a big area of opportunity. The technology is there and I see it as an enabler for what we are discussing, which is the optimization of the balance sheet and the P&L.

LT, RBS Quite simply, we are listening to our customers. They seek to reduce the costs associated with their supply chains. In an expanding global economy, if they wish to remain competitive they must lower their costs. Many previously concentrated on the physical flow of goods, shifting the costs of stockholding onto their suppliers. They are now switching their attention to creating greater efficiencies in the management of their supply chains. If we as a bank wish to remain intermediated with our customers then we must provide the solutions that assist them. Our trade services platforms are constantly being reviewed and enhanced to provide additional services that facilitate easier and more efficient trade processes. And the market is moving: for example, we cannot ignore the rapid growth in Open Account trading. Our customers need the bank to provide financing solutions more geared to that environment. They are increasingly focused on the finance costs paid by their suppliers and are asking the bank to find innovative solutions that will reduce those costs. SWIFT’s Trade Service Utility is being developed as a tool to help the banking world meet these challenges.

However, it is not just about cash. Equally important is visibility, both internally and externally. Our customers are looking at how both our and their own platforms can be developed to increase visibility and communication with their trading partners.

Increased complexity

JS, JPMorgan Financing is a key driver but it’s becoming more complicated. There’s a huge increase in compliance, risk management and risk control, and these factors are important. We talk about the cash-to-cash cycle, but a lot happens in between. You need to have the management information around the whole process, knowing where you are at any point in time with your suppliers – where your goods are – because there may be certain points within that process which can severely impact the financial supply chain. Process improvement is about transparency, about linking together a visible financial supply chain, and offering corporates a way to look at it from a different perspective.

JA, Citigroup Success in the physical supply chain means putting costs back onto suppliers. However, in our view, they are not really able to carry these costs. As a large corporate pushes its supplier for 90-day terms or 120-day terms, that supplier has to go out and finance the additional term. Well, they’re probably financing at Libor plus 200, where Flextronics and HP are financing at, let’s say, Libor plus 25. That differential has to be paid for somewhere even if it is currently not visible. What’s more, many companies have paid down significant amounts of debt, so there’s now a lot of liquidity on their balance sheets. With such poor returns for excess liquidity, companies buy back their own paper – so they’re disintermediating vendor financing houses and using their liquidity to finance their vendors. These companies, which have optimized the physical supply chain quite well, are now beginning to focus on the financial supply chain – and this will have a much bigger impact on their [stock market] valuations.

PR, HSBC I agree that the time is right, but for most banks this is a defensive play as much as it is a business opportunity. Open Account is a threat to some parts of the banks’ business and is forcing us out of some areas. So we need to re-intermediate ourselves. Where to start? We listen hard to the different requirements of the importers or the buyers, and we talk to treasurers, finance directors and increasingly to logistics directors and procurement directors, about what role banks could play in that broader supply chain management process. Therein lies the challenge for the banks: how to leverage our strengths to support supply chain and procurement initiatives and take unit costs out. Treasurers’ priorities are clear, but we need to understand the alignment between the treasurers’ objectives, and those of the other principals – because there may be clashing metrics – and to find out what the key drivers are within that organization.

SJ, Hewlett-Packard Yes. Metrics are key because what gets measured gets done. One of the biggest challenges for banks and corporates is breaking down their silos, and it has to start at the CEO/CFO levels deciding on the right metrics to get the right overall result for the business. I come back to the point that it has to be an optimization of balance sheet and P&L to ensure that you don’t have the hidden costs of relying on small and medium-sized suppliers financing themselves significantly above your own cost of funds. That doesn’t make economic sense as that “financing” cost comes back to you somewhere along the line as a P&L or cost-of-goods-sold cost which is often hidden to the treasurer. Having a high level, long-term vision of what you want to achieve in the financial supply chain is a starting point and should be coupled with having a few champions across the affected organizations. In parallel, companies should be looking at particular business processes where there might be an inefficiency or immediate “pain point”. For example, if IT Operations wants to implement an e-invoicing programme, the financial supply chain champion should be saying: “Think holistically about the impact of the process you implement and how that could help achieve the longer-term goal of financial supply chain optimization as opposed to thinking about invoicing as a siloed process.”

PR, HSBC I’ve just been working with a big retailer in mainland Europe, and I spent a week in a workshop with the treasurer, top buyers, accounts and representatives from logistics and IT, mapping out the procurement to pay and related processes, so everybody could understand the role that they played in that end-to-end, order-to-cash, procurement-to-pay, right from the demand management & strategic sourcing through to settlement. And within that large, well-run, profitable organization it was surprising how much finance did not know about what buyers, IT and logistics were doing, where accounts played a role, and where things were passed from department to department. Suddenly there was transparency of process within that organization.

SH, Flextronics Just to play devil’s advocate, the only people who think procurement is important are procurement people. Cash is a corporate asset, and if you can’t get your cash right, then your share price is going to suffer. I’ve heard how procurement have a bonus metric, how if we don’t pay on time they can’t get their 5% discount, but the most important thing is cash in the bank account at quarter or year-end for our balance sheet, for our rating agency. Procurement will deem many things important that in the scheme of things are not. And unless banks start helping us with our supply chain – funding it, getting more involved in reverse factoring/inventory financing – then they’re not really helping.

PR, HSBC But treasury can’t make the massive impact that strategic sourcing and the buyers can make. If I was a CEO and procurement came to me and said “I can take 10% or 15% out of my cost base”, I’d be biting their hand off. Reverse factoring and improving relationships with vendors is all about collectively taking costs out of the supply chain that they can pass back in unit price reduction, so treasury and procurement need to be intertwined. Procurement think about unit price but treasury have that broader total cost of fulfilment. We understand their financing costs, the full landed cost spread, the sourcing. We understand the real cost of that supplier to our business.

JA, Citigroup I think the strategy’s got to come from the CEO, and the company has to make a decision about what it wants to be. For example, let’s compare two large US retailers: one has a reputation for ruthlessly squeezing its vendors whereas the other will let a vendor get a little bit more margin to increase the longevity of the relationship. The first decision that has to be made is: are we going to be a vendor-friendly company, or are we going to be an exacting company to deal with? Once the company decides, then it needs to benchmark itself against comparable business models.

New management structures

JL, J&W I’m astonished at the lack of financial supply chain managers. Why hasn’t this happened and should it?

SJ, Hewlett-Packard Traditionally we’ve looked at the physical supply chain and finance has been separate. In the future there might be a financial supply chain department in organizations, and therefore one department that owns that vision and strategy. However, the end-to-end financial supply chain is so vast and impacts so many departments that many companies simply haven’t connected the dots and thought about the potential advantages of taking an end-to-end view.

SH, Flextronics In our company there are a hundred supply chains. It’s too complicated, and overall supply chain management has never been achievable. I report to both the CFO and the executive vice-president, finance operations. I do have a split role and I see treasury as part of operations. I see my job inside the supply chain. But until you can merge corporate finance with operational finance, and until they are compensated in the same way, you will never have that integration.

JS, JPMorgan The CFO has to recognize that there are key points in supply chain management that don’t necessarily fall under his control. There are many issues and many departments within a company that have an impact on how it does business, and it’s not purely about financing.

JA, Citigroup I’ll give you an example. One of our clients is a major retailer that is moving from letters of credit (LCs) to Open Account. The treasury team has done the analysis of how much this move would save the company. They went to the procurement side for help in executing the strategy. Procurement went to their vendors and said, ‘If you move to Open Account, we won’t charge you for servicing, but if you stay on LCs we’re going to charge you a nominal servicing fee.’ Well the company’s vendor can take the letter of credit and get 85% working capital from his bank in Asia, and he’s doing $100,000 shipments. A nominal fee was not going to stop them from using LCs. The nominal fee concept was made on the procurement side of the company. So, not many of their vendors are going to Open Account – and it’s because of the complete disconnect between the goals of treasury and the goals of procurement. In addition, it’s also a matter of understanding. We’ve got another client that wanted to go to electronic invoicing. The problem, however, was that its vendors factor 90% of their receivables and most of the factors don’t have the ability to take an electronic invoice. So, they need to stay on a paper invoice, otherwise they can’t factor – and the factoring is where they get their working capital. I think we need to be sure that all parties are looking at the entire picture and the value proposition for both sides.

SJ, Hewlett-Packard We’ve tried to roll out getting our suppliers to send us invoices electronically but there’s not much benefit in it for them – it’s all about HP’s process efficiency. But if you coupled an electronic invoicing solution with ‘by the way, you can lower your cost of financing because somebody will be able to look at who the buyer is as opposed to whom the supplier is’, suddenly there’s something in it for the supplier as well. So for this to get some traction, you have to look at the benefit for both buyers and sellers.

Changing the banking model

LT, RBS What we’re talking about is changing the way banks work. The deeper we move into the supply chain, working in partnership with our customers, the more we have to work both with procurement and treasury. If we are looking to provide solutions that include the extended use of trade platforms as well as the provision of finance solutions, then we have to take a more holistic approach to our customers’ businesses. Our own people have to become equally adept in understanding the non-financial issues that surround the supply chain.

JL, J&W Jeremy, how do you deal with this?

JS, JPMorgan Well we call that part of our business ‘Trade with Emerging People Channels’. That covers the traditional trade business, but it is also things like audit-to-pay products, the automatic matching of the invoice, accounts payable, reconciliation, the procurement card business, our Vastera business, which deals with physical supply-chain management. As a company, it all comes together at a CEO level. Now, do companies buy solutions like that? No, they don’t, not yet. But can they buy them like that? Yes they can. Along that chain there are various products which banks can offer. We can all offer supply chain products on the internet, provide extended payment terms to suppliers, give them discount, assist procurement, enable companies to take advantage of early payment discounts because 70% of invoices go missing somewhere along the chain and never get paid on time anyway. We can all provide these kinds of services, and if a company wants to they can potentially take a completely different view of this whole business idea. But I don’t think many companies are doing that at the moment.

JL, J&W Steve, Sarah, would you buy a complete financial supply chain solution?

SH, Flextronics We’re currently asking the banks to put together a multitude of operational elements that we can pick and choose from. Then we’d like to pick five elements that we are going to offer our supplier or our customer going forward as a financial strategic solution.

SJ, Hewlett-Packard In the past, programmes to facilitate the financial supply chain have been on a bilateral basis with a single provider. In future, there will be interoperability between multiple solution providers, such that data can be exchanged and new marketplaces will develop. Given the size of our business globally, we probably won’t go down a single-solution, single-provider route. In addition there’s an opportunity for this whole area to become more competitive once you move into the multilateral space, because there’s probably no single bank in the world that would have the risk appetite or the coverage for our portfolio. So let’s create a marketplace. I believe that’s where it’s heading.

Financing the supply chain

JL, J&W Let’s move on to financing the supply chain. Bob?

BD, ABN Amro It’s now called financing the supply chain but previously it was called structured trade finance. There are two elements – risk and funding – and it is driven by the need for cost reduction and operational efficiency – reduction in balance sheet costs, improvements in P&L, improvements in time to market and so on. Now, from a banking perspective the risk profile is not as strong as we would wish – you either have to lay it off with other banks or secure some corporate comfort in risk-sharing, or use credit insurance. But underpinning this is the data flow. You need the information, because if inventory is piling up somewhere, and you don’t know what is happening, you can be ‘at risk’. That’s why procurement is also important. Very often one of the first conversations we have is to ask to see the client’s processes as they are now. Then we ask what they want to get to.

JL, J&W But what are the issues involved in providing these services?

JA, Citigroup I think Sarah hit on it. No bank is going to have total coverage or be able to service every single vendor that a company has on their own balance sheet. If the LC business is diminishing, and everything is Open Account, then the real game will be vendor financing in the key export markets around the world. So, the banks need to concentrate on those markets and decide which companies they provide the optimal service to. When an HP or Flextronics asks me to do a total turnover of the vendor, I can either cherry-pick the portfolio and agree to do 20 but not the rest, or, I can try to put together a consortium for them, which is what we’re currently doing. Citigroup has global access to the major buyers around the world. Many local banks don’t have that access. They do have access to a much deeper pool of vendors and a much deeper credit risk than we’ll take in these local countries. So, by combining the two in key export markets, we can bring that marketplace together for Steve, for Sarah. We’ve done it successfully in a couple of markets. But even an institution the size of Citigroup can’t go this alone, because unless it is a group of vendors with which I’m going to do significant amounts of repeat business, the odds are that my KYC/AML [know-your-customer anti-money laundering] costs will be too high to bring all of them on board.

JS, JPMorgan We are known as a banker’s bank, so we’ve been working with partner banks in many different countries for a long time. There is common ground where we can help each other process flows more efficiently. The cost of doing this is prohibitive in many markets, but again it depends on what kind of industry you’re in.

SH, Flextronics I know what the banks would like to offer, but they’re inhibited. They will say: ‘I will do Singapore for you, but I can’t touch Malaysia’. I will ask for a global umbrella facility, and they will say: ‘Ooooh, global umbrella, too many restrictions. But I can help you with x, y and z’. At the moment it’s by jurisdiction, it’s by law, it’s SOX [Sarbanes-Oxley] compliant, it’s auditor compliant, it’s tax compliant, it’s dividend repayment schedule compliant. There are so many trip-ups around the globe.

JL, J&W So is it realistic to hope for a global market for supply chain finance?

Global or local?

BD, ABN Amro Going back a couple of years, SWIFT’s Trade Services Advisory Group took as its underlying philosophy that banks needed an interoperable view, which was inclusive rather than exclusive, because banks globally all had to be able to participate if they so wished. Now, while it is still very early days, and the starting point is simple data elements, common standards and some elementary matching, at least it has started.

LT, RBS What’s interesting for us is the increased level of co-operation between the bank and its major corporate. Supplier Finance is a simple way of financing trade and does not carry some of the complexities of more traditional trade banking. It does, however, carry its own challenges. We all face the same issues of regulation, KYC and AML. Also as John previously mentioned we will rely upon working closely with partner banks that are local to many of the suppliers to our customers. One thing we are also doing is speaking to the suppliers. We recognize that suppliers that previously relied on an LC as a means of raising working capital have a challenge when their main customers move to Open Account. This is where we can partner with some of the local banks to find a way of replacing the certainty of an LC. We have a relationship with the buyer, they have the relationship with the local suppliers, and we believe that by working together we can provide the financing solutions.

PR, HSBC Well HSBC is in a strong position with our footprint in Asia Pacific, Europe and North America, but we still need to partner with correspondent banks on the ground to do the same in key, low-cost countries. I think payables finance and reverse factoring are going to grow. We talked about labour arbitrage, but interest arbitrage will push some of those rates down to the suppliers, and that’s inevitable.

BD, ABN Amro I think there’s also another point here. Asia is much more accustomed to doing pre-export finance or manufacturing advances on receipt of an LC. It’s accustomed to providing finance based on who your buyers are and where your orders are from. But giving value against documents under an LC is not so common in Europe and the US. So if it’s pure corporate risk or it’s credit insured, that brings a different dimension. If you are asked to take direct risk on people of whom you have no direct knowledge, that’s where cherry-picking comes in.

JA, Citigroup I think that banks have to be mindful not to come at it from the wrong end. They shouldn’t try to sell you visibility into your own supply chain. What is critical for me as a lender is to have that visibility into your supply chain myself! I need to know your critical suppliers and how they perform. That will enhance my credit decisions. If it’s a critical vendor of an HP or Flextronics, I would have more comfort than if it’s a one-shot deal, or a vendor that, based on your supply chain data, has trouble performing to the levels of your expectations.

LT, RBS Working with a partner bank in an area of the world where the financial information isn’t reliable, you need the large corporate to supply sufficient information for the local bank to be comfortable enough – if they’re replacing an LC with Open Account – to say, ‘Okay we’ll provide a level purchase order finance here and then increase the funding as we see evidence that the transaction is being fulfilled’.

SH, Flextronics We would be more than willing to give visibility to our supply chain. But we’re not prepared to act as the bank’s insurer or for the bank to finance its supply chain on our credit risk. We will give you full access to the information, but you’ve got to go and lend on your own behalf. Effectively, there’s money to be made but transparency and information flow partnerships cut both ways.

JS, JPMorgan There is a huge opportunity for both the banks and our customers – the buyers – to make money. But it is important to distinguish between businesses. A company sourcing plastic key rings may change suppliers from one month to the next. That is entirely different to strategic suppliers who have long-term relationships. A company like Flextronics or HP would know a lot more about their supplier than a bank would ever know by analysing balance sheets. So some companies will take the view, ‘I know these suppliers really well. I’ve got lots of cash. If I can make an additional return by using my strong balance sheet, the bank will be my distribution agent in Asia for this and can push out the finance to the supplier. I make a return on that financing, and secure better sourcing of the goods, and even secure a cheaper price for it. That’s a deal’. Now, working with partner banks also differs country by country. We’re all talking about transparency, but if you have one country or a bunch of suppliers in several countries where that local bank is not feeding in the information, or giving the attractive pricing that you want, you’re stuck.

Inventory financing

JL, J&W What are the issues around inventory financing? Are there accounting and regulatory issues and is it on or off balance sheet?

SH, Flextronics You can no longer take inventory onto your balance sheet from your supply base and then lay it off to a third-party financial intermediary and achieve off-balance-sheet treatment. To achieve this the inventory must never come to your balance sheet. So the bank has to purchase through its strategic financial intermediary or as the bank itself direct from the supply base. Then theoretically you can get off-balance-sheet treatment.

Then, where is that inventory kept? Now, most big banks will leverage off their global customer supply base which may involve large warehousing capability companies or freight forwarders, who perhaps have underutilized warehousing capability. They will make an agreement with the freight forwarder to use that spare capacity for Flextronics. The warehousing cannot be in a Flextronics warehouse and, more importantly, Flextronics cannot insure that inventory. The insurance of that inventory in a third-party warehouse will not give me an off-balance-sheet treatment. I think both of those elements can be overcome.

But the third and most important reason why this is still a stumbling block is assignment. If I have a relationship and a contract with a supplier, when a bank purchases that inventory I have to assign my relationship with the supplier to that third-party intermediary. Within our contract, effectively all assignment is prohibited, because if a customer asked Flextronics to make their printers, they would be very upset if I assigned any of that production to one of my peer group. The assignment language is all-encompassing within my contract, and affects my ability to assign my supplier contract to an intermediary. So direct purchase of inventory, third-party warehousing and insurance, and assignment are the issues.

JL, J&W When we get the multi-partner and multi-bank solutions that we’ve described earlier, this will get even more complex. Can the banks solve the problem?

JA, Citigroup We have a company called Citicorp International Trading Company (CITC), which was put together for US exports and that’s the only place we’re allowed to take inventory onto our balance sheet, but European banks have a much more favourable legislation for this. However, there are some issues. We’ve successfully solved third-party warehousing and insurance, but the assignability issue is still a concern.

The issue we haven’t solved yet is that for many of our clients we want a sunset agreement. So, using Flextronics as an example, we want to make sure that anything that’s not sold, Flextronics is going to buy from us, because we don’t want to get stuck with the inventory. This sunset agreement also has ramifications on how Flextronics can account for it. So we are working on a legal structure around both assignability and the sunset agreement. However, there are still hurdles we need to get over.

JS, JPMorgan It also depends on the type of business you’re in. Clearly, in the case of HP it’s very difficult. We’re not allowed to have any assignment to protect who the manufacturing party is. But, in the retailing sector for example, suppliers have been financing inventory into the UK, into Germany, putting it into special warehouses and then the retailer in the UK or Germany just calls it down five days before. It doesn’t hit the balance sheet of the buyer until a few days before it’s called in. Many industries have agents that act as intermediaries, so this assignability issue is not there, because the agent automatically keeps title. It also depends on your business. Certainly with oil, there are special purpose vehicles and we will take title, so that’s completely different.

The physical supply chain

JL, J&W I’d like to move on now to the physical supply chain, and in particular to processing improvements. What are the banks doing?

JS, JPMorgan Effectively, we are in the trade management consulting business. Companies spend vast amounts of time every day sourcing goods, gaining import licences, applying the correct tariffs, the duties, looking at where source goods are from and where to add value to them in other countries and then re-export. Some companies are obviously very good at these strategic tactical issues, and others are not. We’ve saved one major US company $2 billion, and this is a major growth area for us.

PR, HSBC We are going that way too. The big debate is over whether the corporates will pay banks for this advice. We have to be in the consulting business to better understand corporate requirements and how we’re going to solve them. But we have got to demonstrate that the consulting process will give corporates real savings.

SJ, Hewlett-Packard To date we haven’t bought consultancy from the banks. Traditionally treasurers do not get involved in the world of customs declarations, for example. So I don’t know whether we’d be interested in that or not, but if you dangle a $2 billion saving under my nose, I’m not going to say “no”.

PR, HSBC There’s a vested interest in a collaborative approach. We’re using the same information for slightly different purposes, with our own commercial motivations, but if we can understand how that information’s exchanged, stored, processed, approved, there’s got to be mutual benefit.

BD, ABN Amro I think “consultancy” is putting it on too formal a basis. As you need to understand a client’s internal dynamics and mechanics, it becomes part and parcel of what we do and the service we provide.

LT, RBS I don’t see RBS as a consultant at all, but as working in partnership to learn as much from the customer as, hopefully, they will from us. The more holistic your approach, the better your financing solution.

JL, J&W The issue is whether the corporates would buy that sort of service. Steve, is that the type of thing you’re looking for? More than consultancy, this is full process analysis.

SH, Flextronics We’re talking about transparency, so the degree of information I would have to give to the bank worries me in terms of Chinese walls. Who we buy from, how much we paid, in what currency we did it – if ever that information fell into the hands of my relationship manager, then got passed to their FX desk, effectively I’ve given more information to my bank than I have to my CFO. That’s why you keep it through as many banks as you can.

PR, HSBC But the logistics organization’s got a lot of information that’s probably underutilized from a value perspective. If the banks or another third party can consolidate this information, process it and use that visibility to provide services that were previously not possible because everybody had a siloed mentality, suddenly all that information is unlocked, and corporates will want to use it. If the banks are the best people to aggregate that, then great. If they’re not then somebody will move into that space.

SJ, Hewlett-Packard Well, there are third-party solution providers doing the electronic invoicing, purchase ordering, etc. I think the value the banks bring is the use of their balance sheet, and they’re very strong at financial risk management and analysis. I just question whether the banks have to own the platforms.

BD, ABN Amro But the mind-set change is the fact that good information handled sensibly is a risk mitigant. Historically, as a lending banker, you looked at a balance sheet. You received quarterly accounts and perhaps you’d have a periodic check on inventory. But now if you have the data flows you can see what’s happening before it reaches the public domain.

JL, J&W So what are the obvious process efficiencies, the low-hanging fruit in terms of financial supply chain?

SJ, Hewlett-Packard You could eliminate whole tranches of downstream traditional order-to-cash, procure-to-pay business processes, for example, remittance advice matching. Thinking about e-invoicing solutions, the minute someone clicks on an invoice to approve it essentially means it is undisputed and an undisputed invoice can readily be turned into a marketable financial instrument and could even trigger the future settlement. So I see a time when these solutions are initiating the payment instructions to corporates’ banks, eliminating the need for corporates to maintain payment interfaces with all of their banking partners.

LT, RBS Going back to what I said at the beginning of our discussion, our larger customers talk in terms of supply chain efficiency while our smaller ones quite literally want us to make the whole processes around trade easier. We have been delighted by the interest taken in our Document Management Services application, which enables a customer to create, exchange and track a complete set of trade documentation from quotes to invoices with their trading community securely online. One additional popular feature is the ability to automatically have previously inputted data inherited into other related documents.

JA, Citigroup We’re looking at outsourcing a lot of corporate activity. In the migration from LCs to Open Account, we’ve done the accounts payable function for a corporate client. They’re giving us a purchase order, and we’re comparing the documents against it. We’re making the decision whether the documents comply or not, and then based on that decision, we’re either executing the payment or going back to our corporate client for instructions. Citigroup has gone through three different generations of this. We take the purchase orders in, and we are just completing our electronic invoice capability, so the corporates’ vendors can give us the electronic invoice. And we’re then looping it right back into our payables discounting engine, so that the client can either make a decision to hold that invoice to maturity or can discount it right online. At a corporate with manual-based accounts payable processes, the cost is somewhere between $200 to $300 per invoice payment. Citigroup is doing it at $20, because of the efficiencies we have.

JL, J&W There is clearly a lot more to be done in this space but that’s all we have time for. Thank you all very much.


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