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Financial Supply Chain Management: (A Simplified Approach)

By:- Amit Bhushan

Corporate customers / CFOs objective statement

Corporate customers find it imperative that they are connected to an information system that allows information exchange (of POs/Invoices/Debit & Credit notes/Finished Inventory Status etc.) with trading partners within their supply chain. This can lead to significant cost and time savings for processing various (Trade/Business) transactions. Furthermore, the supply chain achieves much greater visibility across the enterprise and may acquire a strategic dimension in winning new customers. While effective SCM of an organizations physical operations is critical to its success, to remain truly competitive it must also implement an ongoing process of identifying the financial benefits within the supply chain simultaneously. This is where Financial Supply Chain Management (FSCM) plays an important role as it allows CFOs and other guardians of an organizations financial resources to identify & enhance banking relationships to receive credit support for members (who qualify for bank finance support) of the supply chain. It also provides them with the ability to continually evaluate and take advantage of opportunities to the benefit of not only the organization but also stakeholders such as shareholders, suppliers and customers alike. When a client approaches bank for FSCM, the banks key focus is to ensure that all the business entities are meeting their strategic objectives and remain as profitable as possible. It ensures that the cash flow (for working capital) is optimized. To achieve this, the bank and the organization work together to first identify areas for improvement in the organizations business processes and then prioritize and quantify the benefits or pitfalls of any changes. This practice of identifying process-driven profitability, based on financial merit, coupled with the ability to rank changes in operations based on achievability; enables the business to carefully pick the lowest hanging fruit. The upside of this approach means that the business is able to free up funds to support larger more profitable opportunities down the line. The human element also plays a part in optimizing FSCM. Approaching process improvements and change management in isolation of each other will result in neglect of the true impact on the organization. For example, offering sales personnel and customers tiered bonus incentives or retro discounts can create unpredictable sales trends. This in turn can cause difficulties in managing cash flow projections as sales are held back or pushed forward to meet an individuals personal agenda. Furthermore, problems can also be created by funds being tied up in inventory due to abnormal stockpiling. One of the benefits of FSCM is that it can provide trading partners with access to an organizations system. By making these tools available - especially to smaller, less technically sophisticated suppliers - administrative and financial barriers are often removed. To be able to fully transform an organization to FSCM, several key changes are required. First on the list is the conversion of paper documents to electronic documents. The access to Internet and scanning technology provide a base to achieve the same and are becoming more mainstream for many companies. With Suppliers/Dealers gaining access to system for providing electronic input such as a PO acceptance or Invoice data (of course after authorization from Corporate/Bank) & Invoice Acceptances, companies face less confusion over duplicated information as the information being created is a single source of truth. As a result, suppliers benefit as their costs are reduced and there is less need for reconciliation. Further to this, the risk of error is reduced, disputes are minimized and invoices are settled faster. As a result, companies are able to build and nurture stronger relationships with their suppliers/dealers and be more attentive towards their financial well-being. They can also secure a better position to negotiate more favorable trading terms and pricing structures with their suppliers as well Finance providers such as banks.

SCM/Finance Dept. synergy within corporate

Banking conditions for FSCM Credit lines set up via LMS/CBS systems

Conditioning SCM trade partners for adoptions by Bank RMs.

FSCM features or enablement

FSCM features or enablement

An effective FSCM bank is one that works closely with all the supply chain members like a corporate credit card provider. It analyses all transactions placed on cards and predicts which ones shall qualify for bank finance. The analysis occurs through the validation checks on the net banking screen & other associated Loan drawdown request processes before a request for Finance drawdown can be posted. This helps in bringing in financial discipline among the users (Suppliers/Dealers) to carefully select the business orders that they might want to conclude. By improving efficiencies within the cash payment and cash collection processes, organizations can reduce the overall cost per invoice or cost per transaction, as well as remove inherent errors. This will also help to free resources to manage exceptions such as delinquent customers. Further to this, CFOs will benefit by being able to better predict future cash inflows and outflows through integrated cash flow planning. They will also further increase efficiency within the finance function by reducing unnecessary duplication of certain administrative tasks.

FSCM features or enablement

Put simply, FSCM is not a product; rather, its a key to developing streamlined financial processes that are designed to integrate with an organizations physical supply chain operations to produce a positive impact on the business. It allows CFOs to compare performance through key indicators versus projected outcomes, while at the same time helping them to keep a close eye on factors such as industry trends, competitors or peers. In addition, FSCM along with associated systems allows CFOs to identify the amount of working capital within their organizations assets that is tied up in the overall cash to cash cycle. This allows them to assess whether the organization is obtaining its optimum level of reward. Conversely, FSCM also allows CFOs to identify the financial burden of supporting their current physical supply chain in terms of interest charges, as well as the cost of labor and other overheads. In many aspects, effective FSCM involves a simplistic approach to solving rather complex business problems that can ultimately waste time and money. For instance, by simply removing budgeting spreadsheets and incorporating data onto a single platform, a company can gain the ability to share information across the enterprise. It can also simultaneously reduce the need to duplicate data input, while at the same time increasing accuracy. Further to this, financial controllers can integrate information relating to real transactions occurring within the end-to-end physical supply chain with predicted budgeted financial transactions. This provides them with an accurate cash flow forecast, allowing for long-term cash coverage and shortages to be identified and remedial action taken sooner. Ultimately, FSCM can help CFOs steer their companies towards being more profitable and resistant to market volatility. It ties together a multitude of financial transactions that take place in the supply chain every day and provides visibility on areas of opportunity, as well as those that need improvement. Then companies need to automate debt and liability management; not just for the receipt and payment processes but also the constant monitoring of accounts enabling management by exception, isolating the workload focuses on delinquent accounts. This helps CFOs understand who is in dispute and the reasons behind the dispute. If necessary, preventative measures can be put in place before problems arise, which further enhances service levels on both sides. The final step of the transformation involves the utilization of Business Intelligence (BI) tools. These allow a CFO to easily monitor KPIs within the organization. BI tools also provide automatic triggers or alerts for events such as cash shortfalls, or incidents of cash surplus that are expected to provide the ability to redeploy funds to higher yield alternatives.

FSCM Benefit Statement

Way forward for future workflow automation requirement