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The complexity and global reach of supply chains are continuously increasing with companies aspiring to lower costs, enter new markets and shorten time to market of new products. Companies face a significant challenge in achieving their strategic supply chain goals due to greater product/service complexity, regulatory changes, increasing energy and commodity prices and increasing financial volatility. This is confirmed by a recent McKinsey survey, in which less than half of executives say that they almost completely meet their strategic goals. The main strategic goals are to reduce costs, improve customer service, shorten time to market of new products, improve supply chain reliability and improve product quality.

Attaining these strategic goals is becoming more and more difficult as the supply chain risks continue to increase. Mitigation will demand structured risk management, continuous improvement of processes and finding new ways of releasing capital and improving working capital.

Companies have increasingly recognised the value of a more holistic approach to the physical supply of goods and services (the physical supply chain) such as the advent of six sigma and “just in time” production. These initiatives aim to increase the resilience of the supply chain, reduce inventory and enhance the efficiency and connection between processes at each stage of the production process.

However, few have yet applied the same principles to the financial supply chain leveraging the opportunities of financial logistics.

Banks will play an integral part in realising a company’s supply chain strategy by being not only a service provider but also an advisor. The SEB Value Chain™ is a structured advisory approach to understand companies’ needs and priorities, based on which best practice solutions are recommended. The approach addresses all areas of financial logistics engineering including working capital, risk management and process improvements.

Success requires an understanding of how financial logistics affects the physical supply chain, and more importantly contributes to realising the strategic goals. Supply chain financing, also called reversed factoring, is the most commonly discussed offering within the working capital area. Besides the obvious financial benefits, supply chain financing is exceptionally well aligned with executives’ strategic goals. A correct setup will:

• Reduce cost over time as the supplier’s financing costs are reduced.
• Reduce risk of partial deliveries due to participating suppliers’ financial benefits
• Reduce risk of partial deliveries improves delivery precision, contributing to improved customer service.
• Releases tied up capital that can be redeployed to more profitable areas, eg product development

It is by understanding the strategic implications of our offerings, that banks truly can add value. Working capital, risk management and process improvements are interlinked, and by releasing capital impacts on risk management, improved forecasting enhances hedging accuracy, eInvoicing influences working capital and so on.

Another trend is the increased centralisation, fuelled by the increased supply chain complexity as well as regulatory changes such as SEPA. We see more shared service centres, competency centres, centralised treasury and procurement departments, all in the effort to improve processes and resolve the need for talent. In this process of centralisation and streamlining, business process outsourcing is increasing where routine tasks are outsourced to generate focus on more strategic activities that add greater value to the enterprise. The transition towards centralisation will help organisations to better understand their supply chain, achieve a greater control as well as enhancing their ability to implement cross department best practice solutions.

Effective supply chain management requires a different approach to doing business than many companies have had in the past. In particular, increased cross functional cooperation will be required to fully achieve the companies’ strategic goals. One way to achieve this is by treasury taking on the responsibility for the co-ordination and integration of different departments. Companies have been discussing supply chain management, including financial logistics, for some time. A number of these are now starting to take action to optimise their financial supply chain, with significant effects.

We have found that companies in the Nordics have in many cases been early adopters. This is partly as Nordic companies typically have a relatively high degree of centralisation and have strong technology to support their business processes.

Alexander Braun is the global head of solution management within Global Transaction Services at SEB.