Reaping the Rewards of Synchronizing and Managing the Global Supply Chain

The global supply chain – a term that refers to both international and domestic supply chain management – is an integrated business system that affects all of your trading partners and their respective supply chains. A global supply chain regenerates and replenishes; it has many individual parts, each of which adds costs, risks and opportunities for companies. Managing this process is different for each industry and for every company.

The global supply chain begins with a purchase order and ends with the liquidation of the purchase. In between are three separate but linked processes: physical (logistics and carriage), financial (treasury management and finance) and information (technology).

Pricing and payment terms must be effectively aligned with the physical, financial and informational costs to derive the greatest benefit. That is the key to successful supply chaining – blending all of these elements with risk and integrated information management, so that the whole picture makes financial sense.

Synchronizing and integrating the three components of the global supply chain offers tremendous potential benefits to both buyers and sellers:

• Significant reductions in day’s sales outstanding (DSO) for sellers and better application of cash by buyers.
• Faster payment processing through accelerated information flow to third parties.
• More accurate cash flow forecasts based on real-time receivables knowledge.
• Increased visibility spanning all trading partners in the supply chain.
• Lowered borrowing costs and more favorable terms for working capital.

The Physical and Financial Supply Chains

The physical components are what most people immediately associate with supply chains: packaging, transportation, insurance, security, customs, etc., are all physical components. However, each has informational and financial impacts. Recognition of the importance of integrating the information and financial components of a supply chain is more recent.

For most companies, success has historically been determined by how well they collaboratively manage the process of moving goods though the physical supply chain. Going forward, however, collaboration with the financial and information chains will be ever more crucial.

Ultimately, the question companies should be asking is: who is financing the trade cycle and are you getting the best cost of that finance?

A holistic view of working capital needs and costs across the supply chain will drive management in the financial component. The old paradigm – which fostered chain conflict, with parties focused on shifting costs within the chain – will be replaced by a new paradigm encouraging collaboration, with parties benefiting as they work together to shift costs.

The pent-up value of working capital locked up in the inefficiencies inherent in old supply chain paradigms is enormous. Competitive advantages will emerge as companies work with their financing and trading partners to unlock this value.

The Information Supply Chain

Just as important, but often neglected, is the third distinct supply chain component: the information supply chain. This keeps increasing in its complexity, especially for importers and exporters, and the longer the chain, the more pieces of information and embedded costs there are.

A key consideration when evaluating your information supply chain is: are you using paper or paperless technology? If the former, have you consciously made a decision not to invest in technology? Don’t forget that there are hidden costs to doing things by paper – copies, storage, lost documents, etc. – and there are financial impacts in terms of time, people, bottlenecks and information management.

The supply chain can be supported with information through the use of global trade management software and enterprise systems with advanced global payables, receivables and inventory management functionality.

Leading banks are now seeking to introduce new technology solutions that are aligned toward financial supply chain integration, rather than simply new and repackaged variations of classic bank products.

For example, in the physical supply chain, vendors have traditionally had to hedge against uncertainties and demand flows via excess inventory or excess time. If they do not know what the demand will be, they must hold excess inventory or require excess time to make sure they can meet that uncertain demand in an accessible timeframe. But with technology and information embedded in the supply chain, this uncertainty is replaced with transparency of information, which enables superior logistics management, more accurate demand forecasting and more efficient resource allocation.

Replacing chain conflict with chain collaboration and technology and information transparency allows optimal capital decision-making.

Where Do You Go From Here?

Clearly, technology is indispensable for synchronizing the global supply chain. The ongoing technology challenge will be to accelerate information and cash flow and collaborate more effectively with trading partners in an environment where globally accepted, provider-neutral standards continue to evolve. Companies must understand their supply chain flows and key business drivers thoroughly and choose the optimum combination of solutions and alliances for their business.

Do not forget, however, that technology and business demands may change rapidly. Is your company geared to adapt and capitalize on shifting conditions? Ask yourself the following questions:

• Do the systems that you’re using interface? If not, can they be interfaced?
• Do you have visibility into your key supply chain metrics, and how do you establish priorities to improve performance?
• Do you have a plan for imaging that goes beyond document archiving?
• Do you have a plan for getting to where you need to be?

Finally, when it comes to the physical supply chain, have you brought your banker into the equation? Banks do not provide the physical movement of goods, but they do provide the finance that goes with the physical movement and also possess much of the information that can help clients better manage the financial piece.

The bottom line is that companies need to leverage their internal resources with their external ones in order to truly synchronize and maximize their global supply chains. Anytime you have a project underway that will affect when you make or receive a payment, you need to determine whether or not you have the right financial partners sitting around the table with you. If not, you could be missing a huge opportunity for savings.