Global Logistics and Supply Chain Strategies - May 2008 - (Page 42)

Companies Struggle to Integrate Physical And Financial Supply Chains BY JEAN V. MURPHY If the two supply chains could be truly interwoven, there is the potential to shorten the procure-to-pay cycle, reduce the costs of goods sold and free working capital. So why aren’t more companies doing it? he financial supply chain is linked inextricably to the physical supply chain, but organizational barriers usually prevent these two disciplines from working together to achieve corporate goals. As a result, companies have more working capital “trapped” in the supply chain than they should and miss opportunities to reduce costs through better financial management. “The purchasing discussion typically is around getting the lowest unit cost for goods and the supply chain discussion is around meeting delivery dates,” says Jonathan Heuser, vice president-global supply chain at JPMorgan Chase, New York. “These discussions don’t take into account the ramifications that associated payment terms and methods have on a company’s working capital and the amount of cash the company needs on the balance sheet in order to make those payments.” Similarly, he says, people who manage the financial T piece don’t necessarily understand or have visibility to the physical supply chain—a disconnect that “creates inefficiencies and leaves a lot of money on the table.” This is particularly true in global trade, where the disconnect can prevent companies from achieving the full margin potential of low-cost-country sourcing, says Kurt Cavano, CEO of TradeCard, New York. “Product cost savings can be offset by operational expenses associated with managing global transactions, financial risk and the requirement of additional, more expensive capital,” he says. TradeCard provides a global trade management platform with applications that automate and integrate sourcing, finance and logistics functions. There is a certain irony in this churchand-state-like separation between logistics and finance because both have business processes that are dependent on common information sources, says Nathan Pieri, senior vice president at Management Dynamics, a provider of global trade management solutions based in East Rutherford, N.J. “Supply chain and finance people basically speak different languages, but everything in logistics documents can be used by the finance group, and both share the need to consume information from supply chain visibility applications,” he says. The fundamentals for convergence are in place, he adds, “but few companies are tapping into it.” Chris Vukas, senior vice presidentfinance and accounting, at UPS Capital, Atlanta, also emphasizes this point. “There are amazing redundancies between the paperwork needed to ship goods and the paperwork needed to finance goods,” he says. “If we could bring them together in an optimal way, we could remove the cost of the redundant administration, plus provide real-time risk management around those goods, which would improve the financing environment.” Corporate leaders generally are aware they are missing opportunities in this area, 42 MAY 2008

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Global Logistics and Supply Chain Strategies - May 2008

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