World Trade - February 2009 - (Page 20)

SUPPLY CHAIN FINANCE Patagonia: A Happy Finance Customer When Kyle McIntosh arrived in 2005 at Patagonia Inc., nia the Ventura, California, maker of outdoor clothing thing had already begun discussions with TradeCard to d shift from manual letters of credit to the supply ly chain ﬁnance group’s open account platform. . Soon, the production department came on board favoring the move, “and the CEO has been a fan,” says McIntosh, the company’s corporate controller. The new strategy enabled Patagonia to slash ﬁnance costs $100,000 a year and reduce staff by one person, he reports. Meanwhile, sales have expanded 25 percent to $300 million. And the transition proved to be fairly smooth. Patagonia outsources production to countries in Asia, Latin America, and the Middle East, and 89 factories now use TradeCard’s standard invoice, while the factories and the ﬁnance departwh ment wo work with the same set of information. Supplie “enjoy knowing where they stand on Suppliers payme payments,” he says. No doubt, there was some uncertainty at ﬁrst. A few suppliers were already working with TradeCar but others “were unsure about paying Card, fe to TradeCard, and some felt their prefees e export ﬁnance was at risk,” he recalls. But those concerns disappeared: the fees were lower than those they had been paying to their banks, and TradeCard offered a network of local lenders for working capital, as well as early payment programs. Also: “Different departments within Patagonia now talk to one another, the sourcing strategy is more crisp,” he adds. Sounds like a satisﬁed customer. as well as many years of experience in trade ﬁnance. They also have the deep pockets needed to invest in the technology and systems involved. The global institutions, in turn, deliver their programs to mid-size and smaller institutions, which lack the scale required for the ﬁeld. The large banks—such as JPMorgan Chase Bank, HSBC Bank, Citibank—offer roughly comparable programs, but distinguish themselves from one another in varying ways. HSBC Bank, for example, has built in-house industry sector expertise. “Our staff comes from a variety of backgrounds,” says William Nowicki, Head of Trade and Supply Chain-North America. “That includes retail clothing and consumer goods, which are important for dealing with the trade ﬂows from Asia.” JPMorgan Chase acquired Vastera, a trade management ﬁrm that improves supply chain efﬁciency and supports compliance with government rules. Among the ten or twelve technology ﬁrms with a hand in supply chain ﬁnance, very diverse strategies can be found. TradeCard has specialized in ﬁnance over the past ten years. It not only automates the payments process and creates visibility, but has ongoing strategic relationships with banks. Those include JPMorgan Chase and Citibank, which move the money in its transactions, and a cluster of lenders in key Asian countries that provide pre-shipment credit to suppliers. It works closely with Coface, the credit insurer. GT Nexus focused initially on the logistics side, but has made SCF an equal priority. It has an international ofﬁce network, with global clients, including traders and ﬁnancial institutions. It offers a private label program for banks. But it supports customers’ banking relationships, not its own strategic partners. It offers costing and pricing programs to analyze the entire chain. Orbian Corporation has a major focus on ﬁnance, delivers an automated system for early payments and 20 WORLD TRADE FEBRUARY 2009 bringing liquidity to the supply chain. Signiﬁcantly, it funds transactions through continuing access to large banks (U.S., Europe, Japan) and the capital markets. Orbian holds the receivables on its own, but sells notes against them (receivables are the collateral). Ariba Inc. combines a major role in sourcing, helping clients to ﬁnd appropriate suppliers, with ﬁnance. Its global supplier network has produced a large database on payments history, which can underpin transactions. On the ﬁnance side, it struck an alliance with Orbian in 2007, and just recently teamed up with The Receivables Exchange. TradeStone Software has a major focus on working with retailers, which includes a service that begins with design processes, tracking components inputs, logistics, and includes ﬁnance. On the ﬁnance side, activities focus on payments processing, include creating a letter of credit request, sending it to a bank, grouping “approved for payment” invoices into a single vendor payment. It’s still early For all the rapid growth and billions of dollars involved, supply chain ﬁnance is considered by many to be still at an early stage. Greg Johnsen at GT Nexus says some trickle down to middle market ﬁrms has occurred, but the users are still mostly large corporations. But, “the concept is still new,” there is still a long way to go. And, as Viktoriya Sadlovska puts it: “Supply chain ﬁnance is attractive, and has arrived. But it is still an emerging area in the corporate world. And a big opportunity.” WT Contributing Editor Richard Barovick is a leading trade ﬁnance journalist based in Washington. For reprints of this article, please contact Cindy Williams at williamsc@bnpmedia.com or 610-436-4220 ext. 8516.

Table of Contents Feed for the Digital Edition of World Trade - February 2009

World Trade - February 2009 Contents Taking Stock in America Confronting Corruption in Latin America Supply Chain Watch Tradewinds Where's the Goods? Where's the Money? Hope on the Horizon Managing Fleets in Turbulent Times The Impact of China's Economic Slowdown on U.S. Supply Chains The Fuel Volatile Supply Chain Getting the Most from On-the-Fly Transactions Managing Supply Chain Risk by Managing China Sourcing Capacity OECD Global Economic Outlook for 2009 'Natural' Agricultural Monopolies No More

World Trade - February 2009

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