Global Logistics and Supply Chain Strategies - May 2008 - (Page 44)

but they “struggle with the structuring and implementation of supply chain finance (SCF) programs,” according to a recent report from the Aberdeen Group, The 2008 State of the Market in Supply Chain Finance. Boston-based Aberdeen, which first began researching this area in 2003, agrees that the involvement of multiple departments and processes, both within companies and with external partners, presents problems for companies. “It is difficult for them to understand where the most savings could be derived and where to begin an SCF project,” says Viktoriya Sadlovska, the Aberdeen research analyst who wrote the report. In addition, survey results show that both buyers and suppliers lack knowledge of supply chain finance best practices, she says. Nonetheless, marketplace forces continue to drive companies toward SCF solutions. Of the companies surveyed by need to think holistically about the supply chain,” he says. “For example, if you can shorten lead times from suppliers, you reduce the amount of time that you have goods in the supply chain, which reduces the amount of capital you need. Or you could extend payment terms with your vendors—instead of paying in 30 days, pay in 60 days—and you have a greater chance of selling the goods closer to the time you have to pay for them. That also reduces your capital requirements.” Extending this holistic view to the actual financing can have an even greater impact, but it requires that companies understand the cost of capital for all parties in the supply chain and be willing to collaborate on leveraging access to capital in order to bring down overall supply chain costs. “A large component of the cost of goods sold is inventory financing and you can get that financing at lower debt rates you can free “From a holistic viewpoint, driving down the cost of transportation may increase the cost of procurement.” — Chris Vukas of UPS Capital Aberdeen, 57 percent plan to invest this year in acquiring new SCF technology from a vendor or services partner and 43 percent plan to invest in developing SCF solutions in-house. The majority of buyers and suppliers—64 percent and 54 percent, respectively—cite pressures to lower the cost of goods sold as the primary driver for these planned investments. Lowering the cost of goods sold can involve a variety of strategies, says Cavano. “Moving to low-cost country sourcing is an easy first step,” he says. The next step is to create efficiencies by automating information exchanges and having fewer people processing paper. “When you source in cheaper countries, your gross margin improves and when you take indirect costs out of the organization, your net margin improves,” he says. The third and most advanced step is to focus on return on invested capital, Cavano continues. For that, “companies up capital and reduce the cost of goods sold around the world,” says Vukas. “Inventory is not being financed optimally around the world today.” Where to Begin Supply chain finance addresses both automation and, among more mature companies, working capital management. It also includes the use of total landed-cost planning tools to make optimal sourcing and distribution decisions, says Pieri. “Too often companies make purchasing decisions based on product invoice, without really understanding the impact of such landed-cost factors as transportation, duties, taxes, and other governmental charges. We help our customers make those type of scenario-based planning decisions in terms of trade strategy.” Typically, companies begin an SCF program by automating trade documentation and settlement-related functions. “One of the key elements required to make SCF programs work is to digitize a lot of the information flows going back and forth between buyers and suppliers,” says Steve Keifer, vice president of industry marketing at GXS, Gaithersburg, Md. “This not only provides visibility to where inventory sits in the chain and how it is moving, but it also enables companies to process invoices electronically and send information back and forth to banks so they can make payment.” GXS enables this type of communication and integration between partners with its Trading Grid platform and software. Currently more than 40,000 businesses, including 75 percent of the Fortune 500, use Trading Grid, Keifer says. Branch Banking and Trust (BB&T), the nation’s 11th-largest financial holding company, recently selected GXS to power its new supply chain finance solution called Supply Chain 360. Paul Baity, vice president of payment services for the Winston-Salem, N.C.-based company, says that banks historically have taken a “hands off” approach to the physical side of the supply chain. “If folks needed financing for their transactions, we would do that but without getting very involved,” he says. Global supply chains, however, require a more “hands on” approach. “Our clients used to make stuff in the U.S. and might have to truck it a hundred miles or so,” he says. “But with companies now bringing stuff in from all around the world, we need more effective monitoring. As we started to get a little further into these transactions, we saw an opportunity, by partnering with a company like GXS, to put together services that could make the whole process easier and more efficient for our clients.” Automated settlement is one service that Supply Chain 360 provides. Often buyer’s purchase orders and supplier’s invoices don’t match, Baity explains. “This causes a lot of inefficiencies and ultimately a lot of delays in the payments that we make.” By joining together with GX$, BB&T is able to electronically capture the purchase order and invoice process. “We use one common data element, which allows us to match up POs and invoices and resolve discrepancies much more quickly,” says Baity. “It is a lot more efficient process, which makes it cheaper, and payments happen faster.” It also helps the bank, he says, “because now we have the ability to take that cap- 44 MAY 2008

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Global Logistics and Supply Chain Strategies - May 2008

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