Supply Chain Finance (Open

Account trade) Trends in

Asia/Africa
By – Amit Bhushan (with Comments & Notes)
Contact: amitbhushan@rediffmail.com
International Trade Basics
Going Global
• Globalization is driving fundamental
changes in business models that heighten
the importance of Supply Chains:
– Outsourcing & Low-cost country sourcing
– Longer, more complex supply chains
– Increased compliance and security Requirements
– Technology is altering business models
• Globalization increases opportunities:
– New markets & channel
– Supplier innovation
– Lower costs
• While accentuating the risks:
– Delivery risks
– Performance risk
– Compliance risks
– Payment risks
The Trade Dilemma
• As in any International trade scenario (i.e. between and
importer and exporter) the need exists to work around
fundamental dilemma that:
– They live far apart
– They speak different languages
– They operate in different political/regulatory
environments
– They have different religions
– They have different standards for honoring obligations
• In essence, there could be distrust, and clearly the
importer and exporter would prefer two different
arrangements for payment/goods transfer.
 International Trade
Relationships
• There are three categories of relationships in
International Trade Relationships (see exhibit):
– Unaffiliated unknown
– Unaffiliated known
– Affiliated (sometimes referred to as intra-firm/intra-
group trade)
• The composition of global trade has changed
dramatically over the past few decades, moving
from transactions between unaffiliated parties to
affiliated transactions.
Exhibit : Alternative International Trade Relationships
Exporter
Steady Growth in Open Account Trade, Greater bargaining power of Buyers due to enhanced Competition

Importer is …. High Trade Growth

Area

Unaffiliated Unaffiliated Affiliated

Unknown Party Known Party Party

A new customer A long-term customer A foreign subsidiary

which with exporter has with which there is an or affiliate
no historical business established relationship of of exporter
relationship trust and performance

Requires: Requires: Requires:

1. A contract 1. A contract 1. No contract
2. Protection against 2. Possibly some protection 2. No protection against
non-payment against non-payment non-payment

Possible Supply Chain Financing Scenarios

Global Supply Chain &
Supply Chain Finance
Basics
The Evolution of Global SCM
What is Global Supply Chain : An Integrated Process where several Business
Entities such as Suppliers, Distributors & Retailers work together to plan,
coordinate and control, Materials, Parts and Finished Goods supplies to the
customer/end user. One or more of these entities operate in different countries.

Consumer Product
Needs Design Product
Development
Raw Material
Consumer Sourcing

Wholesaler Supply Chain Factory

Sourcing
Local
Forwarding
Consolidation
Customs
Clearance Forwarder Manufacturing
Consolidation Shipping Control
Consolidation
Some SBUs in a Supply Chain

Product Sourcing Logistics Wholesale

Information Management
Design Retail

Manufacturing End Consumer

$1 $4
The cost that is spread throughout the distribution channels – the “Soft $3”
 Designing the Supply Chain & Defining Roles of each Unit (Geographical/Physical) helps bring
tremendous clarity across the value chain on meeting the “End Customer’s” demands.
Supply Chain Captures the “Soft $3” by looking beyond the factory
For example:
 Boosting efficiency: containers and flawless execution
 Improving coordination: minimizing markdowns
 Onshore business of the Trading Group
 Selling to the source: Global synergies

Since various Suppliers (Affiliated group cos. Or Vendors), main Operating Entity/Lead & the End Customer are
now located geographically far apart (usually in different countries), the Supply Chain Finance has also evolved
as a tool to engage with these entities on a single platform, besides seeking to bring down financing costs.
Global Supply Chain is not without
Operational Challenges
How do I increase What are Sales How/Where do I plan
Where did the
Brand Equity versus Quotas/ production to meet
money go.
Budget Demand

Marketing Sales Production Finance

•  Inability to accurately calculate promotional ROI

• Communication gap between sales and supply chain
lead to out-of-stocks
• Low visibility into promotional liabilities
• Slow, inefficient claims resolution
 Global Supply Chain: Pros & Cons
Advantages Disadvantages
• Reduce Total Costs/ Improve • Inefficient Transportation &
Profitability Distribution Systems
• Improved Fulfillment Cycle Time • Language Barriers
• Productivity Increases • Local Customs & Practices
• Improved Capacity • Political turmoil & Trade
• Expand International Imbalances
Connections
• Market Instability of the New
• Increase Intellectual Assets Markets ….
• Expand reach to New
Markets/Penetrate in Existing
ones (on the back of Lower
Pricing enabled due to cost
reduction) …..
Why Global Supply Chains and Finance
Buyer Pressures Supplier Pressures
• Pressure to lower cost of goods • Pressure to lower costs of goods
sold – 64% sold – 54%
• Desire to work closer with • Pressure to shorten Days Sales
strategic suppliers to reduce costs Outstanding (DSO) – 46%
and improve processes – 36%

Source: Aberdeen Group. December 2007.

Global Trade Management (GTM) and Supply Chain Finance (SCF) are emerging as
increasingly critical areas of focus as supply chains evolve in terms of global reach and
complexity.

A Supply Chain Finance (SCF) solution combines trade financing provided by a financial
institution, a third-party, or internal funds; and a technology solution that unites the
buyer, supplier and the trade financing source electronically and provides financing
triggers based on one or several supply chain events.
•SCF improves cash flow and access to capital for a company’s supply chain
•This results in a lower-risk supply chain, lower unit costs, and better financial
metrics
•The end result is a strategic cost advantage for a company
 What Supply Chain Finance seeks to
achieve?
• The primary Financial Supply Chain trend in the past decade
has been the growth in Open Account (O/A) transactions, or
“trading on O/A terms”
• SCF seeks a Combination of financial services and
technology solutions that
– Links Buyers, Suppliers & Financing providers
– Reduces financing costs
– Increase credit availability throughout the supply
chain
• Links logistics and goods tracking to financing decisions
• Leverages visibility into supply chain events to mitigate risk

Reducing Total Cost and Working Capital

Accelerating Cash Flow
Reducing Supply Chain Risk
 What Does SCF mean to various
Industry Segments?
• Supply Chain Finance & Supply Chain Risk Management lead to:
– Integration of Financial & Physical Supply Chains focused on delivering cost efficiency
– Accelerated by technology and inter-corporate process integration
– Importance heightened by off-shoring and increasing complexity of SCs

What does it mean to:

Large Corporate Mid-Market & SMEs Financial

Buyers (Tier 2, 3 etc.) Institutions

• SC process integration drives • W/C challenges • Elimination of L/Cs in favour

out cost and creates competitive
advantage
• Fewer, but deeper supplier
relationships
• Use visibility (technology) to
reduce risk
• Untie capital locked in SC
(inventory optimization & DPO
increases)
• Longer cash conversion
cycle
• Assuming greater risks
• Limited negotiating power
of Supply Chain Finance
• Focus on transactional
finance models required
• FIs key integration / services
hubs for SC processes
• Data-triggered financing
Supply Chain Management/Finance and
•
SMEs
Procurement / supply chain management
remains a buying function for most SMEs
– Limited view of strategic role of supply chain
management
– Many manufacturers live in the “area code” supply
chain model

• Going offshore seen as important, but..

– Limited skill and capacity engage in global sourcing
– Inventory investment required due to long lead times
– Fear of quality / performance / delivery risk

• Most are underinvested in technology, yet

recognize its value Priorities
in participating in global
supply chains.
SMEs = People & Cash Flow
Mid-size and larger = People, Process, Financial Efficiency
Orchestrate & discover value along the supply chain in
Asia/Africa
 Global Corporations and Mid-Tier Corporates in the Developed World & Emerging Economies are increasingly
aware that Asia & increasingly Africa is not only a cost-effective supplier of Raw Materials, Components & Sub-
assemblies; but also Finished Goods as well. Also their importance as a market for their widgets is growing by the day.
 Global Corporations & Mid-tier Corporates are already having Global/multi-country
manufacturing/operations/assembling as well as vendor and dealer base. Now they are looking to move various other
components of supply chain to off-shore locations where these tasks can be performed more effectively & efficiently
(read: offer cost advantages, but without loosing control). This so as markets have become ever more
demanding/competitive, even as they explode to absorb newer and more of the existing widgets & services at an
astonishing pace.
 Corporate are increasingly looking at tools such as Strategic Sourcing for development of Future Vendor Base or to
hedge Main Supplier Risk in order to preserve their competitive advantage & hedge risks which has primarily benefitted
small Asian & now even African nations. Similarly, to develop new Markets in the geographies, lot of experimentation in
terms of Product tweaks/Servicing models are made to suit the market requirements and meet the ‘Cost of Delivery’
challenge considering affordability of products. Increasingly Counter trade measures like Barter etc. are also employed
to develop these markets/supplier capabilities.
 Outsourcing/Off-shoring of Manufacturing & Services, Global Materials Management, Global Production
Planning/Operations and Global Sales & Distribution; have heralded new era in Supply Chain Management where
increasing sophisticated skills & capabilities are deployed for effective management & acquire strategically
advantageous position in Business/Industry.
 Complexity of Legal Frameworks & Socio-cultural dynamics, Politico-economic settings in various countries plays its
part to make the overall structure even more complex, however as Global Corporations have realized; mastering the
same is now a necessity, not only for growth but for survival as well.
 Corporations are looking Global Servicing capabilities (through their own network or via correspondent network) from
their Financial Services/Banking partners who can guide their market entry strategies in these markets by developing
suitable Financial structures for Dealer Financing, Support their local operations and Provide support to their Vendors in
local markets to develop the required capacities as well as capabilities; and facilitate them integrate with the overall
system of the corporation in an effective manner.
Orchestrate & discover value along the supply chain in
Asia/Africa
 As Global Banks stumble upon each other to retain the Corporate’s Business even as they are looking to either
reduce Risks or avoid taking undue/uncaliberated Risk of their Supply Chain partner in unchartered/obscure
Geographies, they are increasing turning their Correspondent banking network to devise appropriate Financing
solutions.
 These solutions seek to bring down cost of Finance for the Supply Chain, Identify & Reduce Risks, Improve
reliability & information flow; with real time monitoring, Improve liquidity for all actors the System and seek ways to
mitigate Credit Risks appropriately.
 Banks in Asia & Africa are concerned about Clarity on the Commitment of the Corporate towards local market
development, appropriateness of their Market communications/Branding, Demand forecast & demand management,
Client Relationships(win-win??), After Sales service; Dealer’s Management & Technical capability in Demand &
order management, Inventory & After Sales, their experience & capability for meeting market’s needs ad in line with
corporate expectations. They also desire clear policy framework & track record on development of Vendor’s
Technical & Management capabilities to enhance productivity & quality of widgets, skill enhancement through training &
technology transfers, Joint efforts in R&D, clear matrix for ranking vendors/channel partners with well defined
relationship exit policies & processes. Information on counter-trade practices such as barter, compensation etc.; their
likely impact on payments with effective identification of Channel conflicts & resolution.
 Basically, a level of comfort is sought in terms of level of integration of the Supply chain partner and assimilation of
relationship in the value chain. Level of Cross-investments for the Corporate & Supply Chain partners towards each
other as well as Vendor/Dealer’s level of interest in the value chain is sought to be measured including information on
opportunities & rewards for all partners in the value chain. A mature Supply Chain partner in a seasoned Supply Chain
is also sometimes seen as Low Risk resulting in low cost financing.
 The usage of internet based Supply Chain Finance tools offer the bank and opportunity to peek into the transaction
level data & link the same with provision of Financing thus improve the comfort of the bank as well as flow of
information across the value chain. This allows for supply of enhanced liquidity in the system (without any other
additional collateral, generally), clearer Risk mitigation for the transacting parties, lower cost of Finance (as comfort of
the bank increases with clearer understanding of the risks).
Net Results = Savings in Financing Costs
Supply Chain Finance -
Benefits
Supply Chain Finance: Benefits - Today
• Cost Savings
– SCF seeks to eliminate cost from the supply chain – NOT shift it
(unit cost reduction)
– Utilizing a SCF solution can automate manual processes (Lower
end-to-end cost; shorter Cash-to-cash cycle)
– SCF solutions are often cheaper than traditional trade finance
solutions
• Service Improvements/Risk Mitigation
– Sharing of data provides visibility to mitigate risk and speed
responsiveness (increased cost transparency)
– SCF solutions help customers share or mitigate risk by re-
introducing trade banks into the supply chain equation
(improved cash flow uncertainty)
– Bank trade services are now offered on web-based platforms
reducing the need for expensive ERP solutions (working capital
optimization)
– Automated trade transaction processing and reporting
capabilities
• Financing Solutions
– Financing solutions can be offered at each step of the trade
transaction
 Supply Chain Finance: Benefits - Today
• Already almost close to 65% of the business is with Channel Partners in Emerging economies that are
deemed as ‘Unbankable/Not-so-Creditworthy” by the Global Banks on a standalone basis and this
share seems to be rising.
• The above perception of the Global Banks is basis Questionable Financial Disclosure standards, weak
Corporate Governance culture, complex Group & holding structure, lack of written policies &
procedures or track record; little delegation of authority to professional management, low staff
motivation resulting in poor commitment & integrity levels, lack of productive ideas to progress the
line of business, execution skills/energy levels & knowledge management; no known history or
verifiable track record; among a host of other issues.
• Thus when it comes to SCF, the Global Banks are shy to directly underwrite the risks and look for either
Corporate to offer some form of mitigation directly or via Export Credit Agencies

Adequate availability of Funding as well as its cost, are certainly

an issue.
The Global Banks seek to team with local correspondent banks; which have greater experience
in understanding & dealing in the domestic environment and to mitigate the Risks. They offer
support through sharing of technology platform to monitor SC events & link financing largely to
performance track record, also facilitating much closer & strict monitoring. It also facilitates in
storing historical information, analysis among other supports. The local banks can devise/
negotiate financing structures to mitigate their risks with dealers/suppliers basis local factors in
return for ‘adequate’ financing at ‘preferred’ pricing terms.
Supply Chain Finance: Benefits - Today
SCF:A big problem: 4% of finished goods
cost relates to financing – more than
transportation, logistics.
Suppliers uncertain about payment: 1/6th of
accounts receivable (AR) hedged against
payment. Suppliers are cautious, react by
idling cash.
Traditional Solutions have included:
Letters of Credit
Factoring
“Early Pay” or “Dynamic
Discounting”
Asset Based Lending
P-cards
EIPP
Problems with these traditional solutions are:
Limited connectivity among
buyer, supplier, FI
Costly for the suppliers
Inefficient & cumbersome
Time consuming
Source: PrimeRevenue
Affects the balance sheet
Limited controls for the supplier
Given the environment, there exists huge scope to No Certainty of payment
reduce the cost of Finance and improve
liquidity/credit flow.
At an estimate of approx. 4%, Cost of Funds constitutes among some of the larger Cost components of the Finished
Goods for the end customer and Global Corporate see an immense scope of pruning. This is even as they realize
that this is not a direct cost in their own books but rests on the books of their Suppliers. This cost is seen as some
what higher than the cost of Logistics at about 2.5-3% (again, often on Supplier’s Books).

 The corporate are looking to strengthen the Value chain to improve overall performance and reduce costs for the
end customer.
 The are seeking visibility of the entire supply chain preferably on a single platform, monitor activities &
performance, improve order fulfillment through Quick response manufacturing, reduction in response time & better
cash-to-cash cycle for the entire value chain.
 SCF Visibility Platforms offered by Banks/SCF Technology platform providers especially those with linkages to
physical SC have a key role.
 Corporate estimate to bring down SCF cost by a third and Logistics cost by a forth by exploiting synergies, which
are latent as Supply Chain is not so ‘visible’. For a Corporate which has approx. USD1 billion sourcing budget, these
savings can be to tune of approx. USD 22 million (approx. USD 16 mio. from finance & USD 8 mio. From Logistics) in
Direct savings. Possibility of bringing down Inventory holding & Insurance (Cargo) costs.
 Also, a robust SCF program (offering improved liquidity) leads to better negotiating power/sourcing advantages for
all members of the value chain, better financing of cost cutting plans/investment in efficient technologies & process by
vendors; leads to further cost cutting by 1-3%. (Advantage of USD 10 – 30 million for a Billion USD company)
 SCF also opens up new vistas in terms of new markets, ability to service new customer segments, better fill rate,
goodwill of dealers among other similar benefits which may not be easily quantifiable.

Usage of visibility platforms can help in streamlining & deriving efficiency from the physical supply chain. The savings
are enough to prompt corporates focus on such projects in the face of emerging weakness in global economy; to hire
experts and deploy qualified resources towards such projects as this has a clear and short Pay back period. Since
these projects have the potential to strengthen corporate balance sheet & improve franchise value of the corporate
and possibly a repercussion on their banking relationships; the banks tend to indulge the corporate on such projects.
Best-in-class companies are more likely than their peers to have a cross-functional team of purchasing, supply chain,
and finance professionals managing their GSCF programs.

The banks see opportunity to push Transactional products (deemed as less risky), develop futuristic platforms, bank
the supply chain or acquire greater cross-selling potential (i.e. to SC partners).
Supply Chain Finance: Benefits - Today
For Supplier
• Advantage in days sales outstanding
(DSO) 2-4% advantage in average rate of
trade financing Lower cost of goods sold
• Improved cash forecasting
•Leverage SCF generated supplier cost
reductions
•Negotiate better terms and conditions
with suppliers
•Opportunity for major working capital
benefit
•Cost of good sold reduction
•Use cash flow/savings to fund “other”
programs
•Store renovation/expansion, share
buybacks, etc.
•Rate
•Cheaper Access To Capital
•Reduce Costs
For Buyer: For FI:
• Advantage in days payables outstanding •Higher Return/Spread on Corporate
(DPO) – free cash flow Risk than other Products
• Advantage in average rate of short term •Short Lending Periods
capital, Lower cost of goods sold for buyer •Uncommitted Lines
and suppliers •Annuity Stream
• Less risky supply base, preferred client •Cross Sell Opportunities
status for buyer Lower invoice and •Open Account Offering
disbursement processing costs •Reduce Risk
•Strengthen Supply Chain •Country
Assist Suppliers •Supplier
Low Cost Customer •Increase Lending Opportunities
Strengthen Relationship •No Technology or Services Needed
Open Account Financing •No KYC for the suppliers required
• No Cost Payables Presentment &
Settlement Solution
• Limited IT and Process change for
meaningful results
• Non-Rate
Off Balance Sheet Financing
Visibility of Receivables
Date Certain Payments
Access to Capital Faster
Increase Efficiencies
Easy Of Use (Net Banking)
Reduce DSOs
 Corporate Leadership in Supply Chain
Early adopter of Supply Chain Finance
Finance (SCF) solutions realize significant
benefits 57%
Lower unit costs of procured goods

Less risky supplier base / fewer disruptions

48% Buyer-specific
Extended payment terms / Increased DPOs
33% Improvements
52%
Lower production costs

43%
Lower DSOs Supplier-
Improved business continuity 38% specific
43% Improvements
Obtained trade financing at a lower rate

0% 10% 20% 30% 40% 50% 60%

%of respondents actively using SCF
techniques Both

Source: Aberdeen Group. December 2007.

The problem is traditional forms of financing haven’t kept pace with the transformation of the “physical”
supply chain
• Advances in connectivity (internet), technologies (applications), and the capital markets (legal, regulatory, structured
finance) enable solutions that move us from a zero sum game to a win-win for all participants;
Buyers, Suppliers & Financial Institutions
• These services solve the underlying problem by reducing costs in the supply chain and providing visibility and
certainty reducing overall risk
• A number of banks today are offering a SCF solution or evaluating a service like this for their customers
• The market is still young but an estimated 13% of companies deploying an SCF service today while 56% are
investigating options*
 Scores of New SCF Products
Primarily on below lines but Offerings
with variations

Pre-Shipment In-Transit Post-Shipment

Financing Financing Financing
• Raw materials financing • Vendor Managed Inventory • Open Account instead of
L/Cs
• Raw materials purchasing • 3rd Party Inventory
programs Ownership • Extended Payment Terms
• Purchase order financing • Goods in Transit • Receivables Factoring
Financing • Supplier Payment
• Work-in-progress
financing • Inventory Finance Programs (a.ka. Reverse
factoring
• Extended supplier
payment terms • Vendor Managed
Inventory
 Supply Chain Financing –
And The Basics for FIs again
The Basics -
 Corporations are demanding Global Servicing capabilities from their Financial Services/Banking partners
who can support their market entry strategies in Emerging markets by developing suitable Financial structures
for Dealer/Customer Financing & help to mitigate risks. Banks should also be able to support local
operations as well as be able to support Vendors (in local markets) to develop the required capacities as well as
capabilities; and to facilitate their integration with the overall system of the corporation in an effective manner.
The Global Banks frequently rely on their correspondent banking relationships in these markets to develop such
solutions as local banks are better placed to assess risks in these markets & develop solutions to mitigate them.
This is because if there exists a large Vendor/Dealer base of the Corporate in the country, then the Local Bank
may already be banking quite a few of them & would have an assessment of the Credibility & track-record for
these entities. This assessment may help it in better structuring of the program as well as in easier execution.
 While Global Banks of the Corporate draw comfort from their knowledge, experience & understanding about
the unique capabilities of the corporate; its proven skills of operating in various countries which they may have
supported previously. They also have comfort of having a decent revenue stream from the corporate through
services from various product categories, advisory fees & having multi-product, multi-country relationship. So
they are relatively more open to Financing the Supply Chain even at the cost of absorbing somewhat higher risk.
They also have a much greater awareness of Client Processes, policies, structure & system and ability to
approach decision-makers and make their stance known regards corporate decisions, their policies, procedures,
operations & practices. The global banks approach their correspondent citing their corporate’s proven
capabilities and track record to generate interest in the Supply Chain Financing program and try to “Sell the
Risks” involved in the program to the extent they can Part-out with such risk within an acceptable cost.

 The Local bank assessing participation in such Supply Chain (Dealer Finance) structure should carefully
ascertain the level of commitment of the Corporate to support customers/dealers in their local country/ies; their
detailed investment plans/resources deployment to support the market; past track record (in similar markets) of
the entities involved to deliver/support the “Customer promise”, ability & motivation to customize
product/services in tune with local preferences and also to adjust and be in alignment with the local
trade/industry practices and manage associated risks.
The Basics
 The Local Bank assessing Dealer Financing program must also consider the adequacy of incentives &
motivation for the corporate as well as for all other associated entities involved in the value chain to
understand and deliver upon their specific roles in the order generation & client-delivery process consistently.
Assessment of the value chain’s robustness to meet the client requirements adequately & sustainably over the
long term must be studied along with projection for demand for the various products offered by the corporate
to the market through the channel including any potential conflicts of interests in/with the channel.
 Local Banks assessing participation in Supply Chain (Vendor Finance) structure should assess Engineering
capabilities, Quality Controls & maturity of the Vendors; Availability/adequacy of resources to expand
alongside the product plans of the corporate with which they are involved. They should also have adequate
incentives & motivations to deploy adequate resources to support the Corporate’s requirements over a period
of time & be able to understand the new & emerging requirements & opportunities. The detail plans of the
corporate to grow the product lines, Basis of their assessment of the projected demand, past experience of the
corporate in various markets etc. should be assessed.
 The Local bank analyzing Vendor Financing opportunity should also assess, if adequate Technology-
transfer & training support policies are provided & followed upon by the corporate as well as across the
vendor base to develop understanding of the requirements, quality measurement procedures, packing &
delivery standards, enquiry & ordering policies & procedures, payments terms & clarity of the commercial risks
across the supply chain regards transactions. The vendors should be able to understand policies, processes,
systems & structure, commercial documents, information & other requirements of the Corporate as well as
those of the other relevant participants across the Supply Chain and should develop & maintain multiple but
harmonious communication lines at different layers of management at Corporate as well as with relevant
Vendor’s Management so that requirements are clearly understood and there is clear
demarcation/understanding of performance & commercial risks & rewards. They should also clearly
understand various Cross-linkages that exists at different layers through the supply-chain, payment netting
policies of groups, and similar other commercial exchanges & their impact of individual entities across the
supply-chain.
 The above study of Risks are in addition to the normal Credit Assessment procedure of the Local Bank for
the Vendor/Dealer Client Risk Category since in such transactions Banks are normally required to provide
additional/increase Liquidity support to Vendor/Dealers over & above what a normal Credit Assessment activity
for the Vendor/Dealer client shall permit under the regular/normal credit program of the bank. More so,
because generally Credit facilities under such programs are not secured by any other additional collateral
requirements.
Some Tenets of Effective
Supply Chain Finance
Creating Effective Supply Chain involves
• Develop Strategic objectives & tactics
• Integrate & Coordinate activities in the Internal Supply
Chain
• Coordinate activities among supplier & customers.
• Coordinate Planning & Execution across theSupply Chain
• Form Strategic Partnerships
Managing Successful Supply Chain involves
• Trust among Trading Partners
• Effective Communications
• Supply Chain visibility
• Event Management Capability
 The ability to detect & respond to unplanned events
• Performance Metrics
Financing a Supply Chain involves
• Making an objective assessment of the above in quantum
with the risks being underwritten.
Global Supply Chain
Management :
Metrics to measure effectiveness
Perspective Metrics

Reliability • Order Fulfillment Lead Time

• On Time Delivery
• Fill Rate (Fraction of Demand met from
Inventory/stock)
• Perfect Order Fulfillment
Flexibility • Supply Chain response time
• Upside Production Flexibility
Expenses • Supply Chain Management Cost
• Warranty Cost as a percentage of
Revenue
• Value added per employee
Asset • Total Inventory days to supply
Utilization • Cash-to-cash cycle time
How does each •ofNet
theAsset
memberturns
of Supply Chain fare on the above measures.
Supply Chain Performance Drivers

 Quality An objective assessment criteria with the

mentioned factors should be developed.

 Costs

 Flexibility

 Velocity

 Customer

Service
Supply Chain Issues
Policies regards Issues pertaining to the Supply Chain must be objectively
assessed
Strategic Issues Tactical issues Operating Issues
• Designing the Supply • Inventory Policies • Quality Controls
Chain • Purchasing/ordering • Production Planning
• Partnering Policies & Control
• Managing Change • Production Policy
• Transportation Policy
• Quality Policy
Emerging Global Supply
Chain Finance – Systems
Model
 Porter’s Value Chain Model and The Supply
Chain
Typical functional areas mapped on the value chain of a manufacturing company

Firm Infrastructure
Primary Activities Support Activities

(Accounting, Finance, General Management)

Human Resource Management
(Human Resources)

Prorgin
Ma
Technology Development

fit
(Engineering)
Production/Operations

Inbound Operations Outbound Marketing Service

M rofi
Logistics Logistics and Sales

P
a rgint
(Material (Client
Management- (Operations) (Sales & (Marketing) Relationship
Operations) Distribution- Management)
Operations)

Supply Chain
 The Value Chain
• Convergence of Three Value Chains
 Physical
 Informational
 Financial
• Strategic approach to dealing with global trade’s inherent complexities is the challenge in SCF.
 Marrying PEOPLE and PROCESSES and the leveraging of integrated INFORMATION TECHNOLOGY to
unite the disparate functions and constituents involved in global trade to optimize supply chain efficiency
and effectiveness.

Physical Goods, Information, Payment Flows

Logistics

Physical Goods

Information

sr eli at e R
sr eil ppu S

sr e mus no C
sr ot ubi rt si D
sr er ut caf una M

Financial Flows
Financial Institutions
There are four primary types of players in supply chain finance. There is the
buyer, the supplier, the technology provider, and the financing institution.

Buyers are the primary drivers of supply chain finance. As the builder of brands, and
associated advertising campaigns, they are largely responsible for shaping consumer
demand for the products they wish to sell. They're also the first in the chain to feel the
pressure to reduce costs in a market where raw material prices keep rising but
consumers expect prices to keep falling in the Walmart Rollback era.

Suppliers need good supply chain finance the most. As the company that manufacturers
the goods, they not only feel the current increases in raw material, energy, and labor
costs the most, but traditionally hurt the most since they need to bear the brunt of the
cost and typically go the longest between the initial outlay for raw materials, overhead,
and labor and the day they finally get paid for producing the product.

Technology Providers are the enablers of supply chain finance. They provide the
technology that connects all of parties together, and enables the visibility and
communication required to support modern supply chain finance strategies.

Financing institutions play the role of lender in supply chain finance and offer various
types of financing, including Pre-Shipment Financing, In-Transit and Post-Shipment
Financing and may offer payables discounting and receivables management services.
 The following explains their roles;
Activity Logistics/Transportation Provider Technology Provider Financial Services Provider

Goods Deliver transportation, logistics, andN/A N/A

supply chain services – i.e., move the
goods.

Information Collect and provide information aboutVerify data transfer; aggregate, analyze,Receive data from translator in
goods disposition to customer,manipulate, and provide data; authorizeorder to authorize financial
translator, and financial servicesfinancial transactions. transactions.
provider.

Funds N/A Participate in funding for transactionParticipate in funding for

and assume a proportionate share of thetransaction and assume a
risk. proportionate share of the risk.

Sales & Marketing Identify prospects, participate in salesIdentify prospects, market GSCF,Identify prospects, participate in
calls, stem commoditization. participate in sales calls, identifysales calls, assist in structuring
financial risks, assist in structuringcredit solutions.
credit solutions.

Financial Benefits Transportation revenue, deeperInterest income, fee income, deeperInterest income, deeper
relationship with customer andrelationship with customer, financialrelationship with customer,
translator. services providers, andtranslator, and
logistics/transportation provider. logistics/transportation provider.
The New Communications Architecture of Modern Trade/
Supply Chain

Corporate
Supplier Customer
Client
Contract Contract

Internet Intranet Internet

• Business Infrastructure in multiple vendor environment

Source
• High transaction volumes
• Real-time decisions across the supply chain
• Application link enabled (ALE) technology facilitates the transfer of standard business messages between processes.
• The internet extends this supply chain integration outside the boundaries of the business itself to encompass vendors and
customers.
• Business Process Procedures (BPPs) are the actual program elements that provide the functionality of the ERP System.
• Many of these BPPs are used by more than one of the application modules.
 The Supply Chain Framework for an
Entity
Buyer Supply Chain

Plan / Invest Source & Supply Chain Production Inbound Invoice Payment
(Long-term Capital) Procure Risk Mgmt. (Production Logistics Processing
Financing)

Cash & Working Capital Mgmt.

Financing (e.g. lines of credit, term loans)

Risk Management (e.g. insurance, bonding)

Compliance Management (e.g. SOX, customs, security)

Connectivity (e.g. technology platforms)

Other Services (e.g. consulting, education, trade promotion)

Plan / Invest Sell & Supply Chain Production Outbound Collection

Invoicing
(Long-term Capital) Negotiate Risk Mgmt. (Production Logistics
Financing)

Supplier Supply Chain

 Supply Chain Finance = Managing the Working
Capital
Modify
Modify Modify
Modify
Payment
Payment Payment
Payment
Terms Terms
Terms

Optimize Revise
Reduce, parts Optimize Revise
delivery and Optimize Optimize
Payment Optimize
complexity & Payment delivery and
warehousing product Payment
Processes Payment
releases Processes warehousing testing Processes
Processes

Order & After-market

Manufacturing Preassembly Assembly Packing & Sales
Design Materials Procurement Services
Shipping
Planning

Optimize Reduce Reduce

Reduce Reduce
Optimize / Reduce Reduce
Procurement Lead Times Finished
Finished Inventory
Procurement Lead Times Inventory
Purchasing & WIP GoodsGoods
/ Purchasing & WIP

• Buyer / Supplier collaboration seeks to accelerate cash flow and

eliminate cost from the supply chain
Source: Boston Consulting Group, EDC. May 2008
Managing the Accounting
and Finance Systems
Strategic
StrategicSystems
Systems

Internal
Internal External
External
Environment Tactical Environment
Environment TacticalSystems
Systems Environment

Operational
Operationaland
and
Transaction
TransactionProcessing
Processing
System
System
Managing the Accounting and
Finance Systems
STRATEGIC SYSTEMS
a. Strategic Planning b. Ratios and Financial Health
c. Merger and Acquisition Analysis
INTERNAL EXTERNAL
ENVIRONMENT TACTIAL SYSTEMS ENVIRONMENT
Top Management a. Budgeting Preparation and Control IRS
Operation/ b. Investment Management SEC
Production c. Capital Budgeting d. Cost Analysis and Control Vendors
Marketing e. Tax Management f. Auditing Clients
HRM g. Financial Planning CPA Companies
Engineering Suppliers
Customers
OPERATIONAL AND Business Partners

TRANSACTION PROCESSING
SYSTEMS
a. The General Ledger b. Sales Order Processing
c. Accounts Payable and Receivable
d. Receiving and Shipping
e. Payroll f. Inventory Management SCF
g. Periodical Reports & Statements
Basic Units of Enterprise Resource Planning System
• Transaction Processing System (TPS)
– supports transaction processes
– monitors, collects, stores, processes, and
disseminates information for all routine core
business transactions
– includes accounting and finance transactions and
some sales, personnel, and production activities
Large amount of data are processed
The sources of data are mostly internal, and the output is
intended mainly for an internal audience
The TPS processes information on a regular basis
Large storage (database) capacity is required
High processing speed is needed due to the high volume Business
TPS basically monitors and collects past data Transaction Data
Input and output data are structured
High level of detail is usually observed
Low computation complexity SCF
High level of accuracy, data integrity, and security is needed
High reliability is required
Inquiry processing is a must
• A functional information systems comprises several
smaller information systems that support specific
activities performed by each functional area Business Process
• The specific IS applications in any functional area can
be integrated to form a coherent departmental
Functions
functional, or they can be completely independent
• Functional information systems interface with each
other to form the organization-wide information
system
• Some organizational information systems interface
with the business environment
• Information systems applications support the three
levels of an organization’s activities: operational,
managerial, and strategic
 Supply Chain Management & Finance in System (ERP) Environment
Supply Chain Finance
Management
Some Challenges: SD FI
•Manual-intensive financial processes
are becoming too burdensome - time to MM CO
reconcile and approve invoices is too
PP A Popular AM
long
ERP Client Business Process
• Firms lack cross-functional SCF
teams Server Procedures (BPPs) shared
• IT resources are constrained to across application modules
automate invoice and payment QM PS
processes
• Multiple financial systems make PM PP
invoice and payment concentration
virtually impossible HR IS
• Financing alternatives available that Work Flow
do not impact ratios, balance sheet, ~
lines of credit, etc. Product & Service
People
Web Application Server or
Middleware
•SD - Sales & Distribution * FI - Financial Accounting * QM - Quality Management * PS - Project System

* MM - Material Management * CO – Controlling * PM - Plant Maintenance * WF - Workflow

•PP - Production Planning * AM - Fixed Asset Mgm’t. * HR - Human Resources * IS - Industry Solutions

• ERP transaction data is entered where the data is initially created in the business process. Example: The receipt of a customer order
to the delivery of that order to the customer.
• Once entered, data is available for reference and use with all other events along the supply chain.
• A change in the data from one ERP application will result in an automatic update of that data when used in the other application
modules involved.
Supply Chain Financing for Financial Institutions is about Linking the various
components of the Enterprise system with FI systems in a Web-based environment in
an orderly manner, offering visibility, recording & monitoring events; clearly identifying &
mitigating risks in a multi-entity set up & providing cheaper Finance.
Cash Cycle
Demand Manufacturing Procurement Order Shipment Payment Sales
Management Cycle Management

Strategic Sourcing
Strategic Sourcing Strategic Sourcing
Physical Supply Chain Mgmt.

Electronic Data
Integrated Visibility Supply Chain
Interchange Information Business
Systems Trace & Track Event
Intranet/Internet Management Intelligence
Management

Supply Chain – Data Interchange – Information Management

Risk Insurance Document Financing Cash Treasury Payment Forex & Mgmt.
Management Services Management Commodity Reporting
Risk Hedge

Financial Supply Chain Management

 Supply Chain & Modern ERP
Systems
Modern ERP is a software that
processes in the supply chain.
supports the information flows among the

• Modern ERP System integrates and encompasses the primary aspect of supply
chain processing.
• ERP consists of a series of integrated core business applications modules for
transaction processing.
• These modules contain a set of functions that implement best business practices
for supply chain management (SCM) activities.

Information Flow & Flow of Goods

Manufacturing Distribuion Retail Outlet
Suppliers
Transfer Transfer
Transfer Transfer

Information Flow & Flow of Cash

Supply Chain
 Emerging Modern Supply Chain Finance: A View

D
n RFI
arto held
or C D n d
Ha er D
l e t
Pal D Tag RFI RFI FID
I Fix er Rea
d Fix er Fix R r
- RF d d de
Rea Rea Rea

1,2 3 4 5,6 7 8 9 10

Transportation process

Factory Inland Port of Steamship Port of Inland Distribution

Customs Clearance
Dray Lading- Line Discharge- Dray Center
Booking Request

Inventory Update
Inventory Update
Purchase Order

Terminal Terminal
Status Update

Status Update

Status Update
Bill of Lading

POD
ASN

Containe Containers Containers Containers Containers Final

rs loaded moved to port Vessel at
are loaded are loaded moved DC. delivery
of lading. sea
on ship on ship

Flow of Goods, Information and Funds

Supply Chain information is gathered, aggregated and normalized from multiple

points and systems, providing a single view across orders, inventory, shipments
PO Pre-shipment and financial supply chain processes. A/R Financing
Invoice
Financing Finance
Factoring
PO
Source:
Financing Financing Forfaiting
Letters of Inventory Financing
TradeBeam Credit Programs
Buyer Financing Post-shipment
Documentary Finance
Supplier’s Credit
Collections Buyer’s Credit
Global supply chain convergence is providing visibility platforms that
are reducing liability and risk and opening the market for Structured
Finance Solutions.

Supply Chain Convergence is Releasing Value ~ $$$

Convergence is leading to:
• The development of financial solutions within the inbound-outbound
supply chains & the after market.
Offering significant working capital release.

• The integration of inventory optimization platforms into supply chain

offerings.
The establishment of multi-vendor businesses within the services
arena.
Reduction in inventory, working capital and product liabilities.

• Solutions that are transferable across industry sectors using global

logistics capability.
Supply Chain Finance in
Asia/Africa
 Current Environment
• In a time with so much bad news, the good news is that most companies have
substantial potential to improve their working capital management and suboptimal
practices by implementing supply chain financing solutions
• External forces (scarce and more expensive bank lines, higher cost of capital) are
creating pressure on supply chains
• The most common suboptimal practices creating inefficiencies in the supply chain
include: – Fragmented banking and processing structures
– Limited global cash visibility and inaccurate cash flow forecasting
– Compartmentalized and decentralized receivables, payables and working capital processes – Localized investment
practices with only periodic oversight
– Ad-hoc subsidiary funding and repatriation
• Some of the SCF solutions to address opportunities are:  
– Supply Chain Finance & Service solutions that include Buyer Centric and Seller Centric Finance programs –
Consolidated financial institution transaction servicing relationships
– Streamlined and rationalized treasury, cash flow forecasting, billing and procurement practices – Centralized
investment processes
– Systematic practices for up or down-streaming of cash between affiliates and the corporate parent
• By addressing these suboptimal practices and providing access to liquidity within the
supply chain, companies can improve their financial performance and the efficiency
of flows through their physical and financial supply chains
 SCF can drive competitive advantage: Only 13% of respondents are actively using SCF
techniques to lower end-to-end costs in their supply chains.
 56% have firm plans or are currently investigating options to improve end-to-end SCF.
 Current Environment
The need to increase capital or inject capital into the supply chain more quickly is being caused by
several factors:
1.) Market trends with respect to the global supply chain have caused companies to demand an
integrated approach/solution to physical and financial supply chain challenges:
a.) Buyers are looking to optimize their balance-sheet by delaying inventory ownership.
b.) Suppliers are looking to obtain funds earlier in the supply chain at favorable rates, given
buyers’ desire to delay inventory ownership.
c.) Middle-market companies are looking to monetize non-US domiciled inventory to increase
liquidity.
d.) There is wide interest in integrated supply chain finance solutions.
2.) Globalization of the United States and Western Europe’s manufacturing bases has resulted in fewer
domestic assets that can be leveraged to generate working capital.
3.) Most small and medium suppliers to U.S. and European businesses are located in countries that lack
well-developed Capital markets. Without access to efficient and cost-effective capital, production
costs increase significantly or the suppliers go out of business.
4.) Letters of credit, a long-standing method of obtaining capital for suppliers in less developed
countries, are on the decline as large buyers are forcing suppliers to move to open account.
5.) There is a desire to ensure stability of capital as supply chains elongate.
 Supply Chain Stages & Solutions
Working Capital is one of the largest core users of capital. Although many companies have made
significant improvements in working capital management, there remains tremendous upside to
leveraging the latest tools and resources to take it to the next level especially in context of
Emerging Markets.
Procure to Payment Process Cash Management Order to Cash Process
Processes & Structures

Purchase Invoice Payment Clear Invoice Payment Payment Clear

Order Payment Issuance Receipt Payment

Levers Streamline Supply Chain Streamline Cash Management Streamline Supply Chain
Accounts Receivables Processes & Structures Accounts Payables

• Manage DPO •Reduce DSO

•Increase visibility to global cash
•Reduce COGS •Sustain or accelerate revenue growth
•Improve cash forecasting
Working •Reduce processing costs & errors •Minimize collection float
•Improve yield & reduce funding
Capital •Capture early pay discounts •Accelerate cash application of
costs
Improvement •Increase rebate from card usage •Receivables
•Systematize processes and
Strategy • Improve relationships with supply •Improve predictability of cash flows
consolidate
chain partners •Operating more efficiently
•Manage customer credit risk
•Improve relationships with supply chain
partners

Enhance Working Capital

Release Liquidity
Improve Performance
Supply Chain Finance in Asia/Africa
While there have been initiatives to speed up the physical supply chain in Asia by harmonizing the Trade &
Duty structure and by improving Infrastructure & strengthening Institutions to facilitate Trade, the
Financial Services industry in Asia has been criticized for its inability to develop at the same pace.

Supply Chain Finance is expected to work as a lubricant for the Corporate Supply Chain as it helps in reducing
financial risk of the entities involved. It brings in Bank/Financial Service provider to bring in its Risk
Management & Advisory capabilities for structuring of transactions/deals and offer guidance regards Legal
& Taxation aspects to the Corporate & other entities (generally SMEs) involved in the Value Chain. It also
helps in developing an understanding of appropriate Incentive/Reward structure for entities across the
Supply Chain.

Making the financial supply chain more efficient means reducing manufacturing costs, business process costs
and costs related to logistics. But this can only be achieved with a set of carefully designed financial
solutions that are designed around the whole supply chain & define risk for each of the entities & focus on
developing procedures to mitigate the same in a transparent & effective manner besides bringing their own
value-add like ensuring liquidity across various entities participating in the Value Chain.

Significant developments have already taken place in Asia, in making the processes involved in taking goods
from the raw materials stage, through production to the ultimate delivery and then to the end-consumer,
in a more efficient manner. These improvements have been a result of:

• Faster and cheaper telecommunications;

• Globalization that has facilitated a better understanding across borders thereby facilitating negotiation;
• An almost insatiable demand from consumers for more choice and more speed;
• The increase in disposable income in more and more countries;
• The increased use of air transportation; and
• New technologies.

The above trends are now repeating themselves in Africa as those countries rush in to capitalize upon their
strength in Raw material supplies as well as improve upon their manufacturing/service capabilities.
The Financial Supply Chain
A financial institution can truly assist in creating value for a corporate entity by
understanding the entire supply chain and by working in collaboration with other
members of that chain, sharing the same vision and dedication to quality and
technology. This atmosphere of trust creates a desire to offer banking and other
financial services to the supply chain.

Data is Key to Unlocking the Inherent Benefits of Efficient Supply Chains

Figure 1: The Importance of Data for Efficient Supply Chains

IT developments over the past 10 years have provided global Supply Chain & trading communities with
massive opportunities to realize their potential and gain an edge over their competitors. The key to unlocking
these benefits is the efficient management of data that is created and used by all parties in what should be a
simple process of moving goods from "A" to "B"; or manufacturer to consumer.
The Financial Supply Chain
What IT does is:

• It speeds up communications between various entities in the supply chain & offers opportunities to
Financial Service providers who have Relationship with these entities to peep into the ongoing transactions/
processes for effectively guiding the transaction to conclusions & identify/manage/reduce risks as
appropriate.

• It helps in bringing clarity to how & in what manner the different entities in the Supply Chain can engage in
transactions, in defining various risks & their boundaries, in identifying exactly who is owning what risk on a
real-time basis.

• Integration of Corprate’s system with that of the bank’s helps in relatively greater transparency in recording
of Supply Chain events.

• It helps in Eliminating errors in the documentary or order process;

• Reduce the various risks inherent in international trade by providing transparency at every step;

• Increase Inventory Visibility, Improve agility & Analytics capability, Improve reliability & customer service.

• Speeds up the supply chain transaction; and

• Ultimately reduce the costs of a company's supply chain.

The above leads to banking becoming more comfortable due to better understanding of Risk and ability to
monitor performance at short intervals time at low cost.
 Encourages greater commitment of capital/credit to the structure
 Comfort in lowering the cost of finance
 Improved other forms of support to the entity once the performance track-record is established
Basic Supply Chain Finance Structuring
The basic process for efficient supplier payments and supply chain finance can be summarised as
follows:

• The buyer sends to the bank a Confirmed Payables file specifying the dates on which invoice
payments are to be made.

• Suppliers are advised by the bank of the amounts and dates on which payments are to be
settled on behalf of the buyer.

• This communication can be by email, fax, post, or preferably on the bank's web-based portal.

• In addition to informing the supplier of future payment dates, the bank offers the supplier
early settlement of these payments. This financing is negotiated with the suppliers
separately from the supplier payments which the bank undertakes to make on behalf of the
buyer.

• If the supplier decides to accept the early payment and completes the short form
documentation, funds will be received by the supplier at an account with the financing bank
or any bank of his choice.

• At maturity of each invoice the bank either makes settlement to the supplier on behalf of the
buyer (if early settlement has not been taken by the supplier) or is reimbursed for the
discounted payment using the buyer's funds in those cases where supplier finance has been
drawn down.

• This structure works equally well for both domestic and international trade.
Migrating from Paper to Electronic in Supply Chain
Finance

Banks in Asia are migrating their customers onto secure and robust web-based portals,
where suppliers can access the latest invoice status and financing offers and have the
opportunity to accept early settlement of selected invoices or indeed all invoices.

Supply Chain Finance

Migrating from Paper to Electronic in Supply Chain
Finance
Migrating from Paper to Electronic in Supply Chain
Finance
Benefits for the Buyer

Creates a more collab orative, stable and financially robust supply chain which functions mo re efficiently for the benefit of the buyer and his suppliers.

The bank works with the buyer to inform the suppliers of the new supplier payment arrangement, outlining the operationa l and financial benefits.

Cuts the cost of proce ssing supplier p ayments and gives the buyer improved visibility of its outbound cash flow, by outsou rcing the supplier payments process to a bank.

Reduces 'chaser' queries from suppliers regarding the current status of invoices, ie have invoices been received, p rocesse d and approved? Suppliers can obtain the status of invoices and discounted early settlement offers on the bank's supplier p ortal.

Importantly, where properly structured and documented, arms-leng th finan ce for suppliers can be delivered in such a way that trade payables on the buyer's balance sheet con tinue to be classified as commercial outstandings due to trade creditors, inste ad of being con verted into ban k debt which would otherwise impact negatively on the buyer's debt gearing ratios.

As a separate arrangement, the buyer may be able to negotiate improved terms (eg cost of goods or longer trade credit terms) with his su pplier base, in the light of the improved working capital management the suppliers enjoy under the bank's supplier payment progra mme.

•
Supply Chain Finance and Factoring/Invoice
Discounting
While supply chain finance benefits from buyer data (ie knowledge that invoices to be financed
have been approved), factors and invoice discounting providers are generally reliant on
information solely from the supplier at the point when funds are advanced.

The natural way to enhance a supply chain finance solution is for a bank to deliver value-added
solutions that assist buyers in the invoice approval process.

• These accounts payable solutions and e-invoicing initiatives help the buyer to streamline
his processes and approve his invoices more quickly.

• This in turn enables the bank to offer finance to suppliers earlier in the trade cycle.

Banks experienced in supply chain finance are therefore working their way back along the
trade cycle in order to bring their customers value added services to facilitate the efficient
receipt and processing of invoices.

This in turn will enable the creation of greater volumes of approved payables, which will permit
suppliers to get early settlement on more invoices, hence releasing increased working
capital from the financial supply chain.
Supply Chain Finance and Factoring/Invoice
Discounting

Loss Payee on
Insurance Policy
5a. Payment 6. Payment
terms of up to of Claim
180 days (360
days in some
cases)
4. Purchase
of A/R
3. Transfer
of Title/
Cross-Border Invoice list 5b.
Buyer Payment ECA Insurer
Dilution &
1. Shipment uninsured
portion

2. Invoice

Credit
Seller
Insurance
Policy
Supply Chain Finance in
Asia/Africa – Next Steps
Global Financial Crisis has changed the behaviour of our Corporate as well as those of
Financial Institutions/Banks.

Corporate: - Desperately seek Capital to support the growth, yet are keen that they protect
their valuable trading partners in their Supply Chain (besides seek to cutting costs).
 Clients also want a single integrated platform to view all their Cash, Trade/Supply Chain activities.
 Need Real assessment of their including real time information status on Transactions/order flows through out the
value chain.
 Real time capture & reporting of all actionable information & analytics and all Supply Chain events.
 Fx Visibility to hedge/mitigate losses.

With shrinking credit/risk appetite & reduced lending power, it is challenging for any one
bank or institution to fund the entire Supply Chain of any large, multi-country/location set
up.
 Arranging for funding through Corr. Bank also often leads to too much risk with the lead/arranging bank (which
are now frequently seeking to reduce risk).
 Partner banks are also hesitant to go to any single bank’s proprietary platform, thus the corporate’s purpose for
the project is undermined.
 Though bank’s are often seeking ways/capability to on-board Supplier’s in countries/geographies where they do
not have physical presence, however:
 This does not serve fully in terms of capture of full information flow.
 Regulations in certain geographies are a hindrance.

The above has led to growth of bank neutral third party providers like Misys,
Orbian, PrimeRevenue to name a few. These platform support information flow
activities between Clients, their channel partners & participating banks.
Benefits of working with GSCF Technology providers:
The Application Service Provider (ASP) model or hosted services eliminate the need to purchase and install software are
catching on with organisations seeking to capitalise on supply chain finance at a time of tightening IT budgets.
• Costs: As no up-front capital investment is required, it represents a very affordable model. The traditional, in-house
model, pursued by several banks setting up SCF solutions, requires significant capital investment.
• Cutting costs and time to market :Banks that use ASPs to deliver supply chain finance programmes and services
to their corporate clients can eliminate the costs involved in developing or purchasing the software required, as well
as the cost of software installation, maintenance and development – all of which are managed by the ASP. Their
financial outlay is thus limited to payments for transactions made via the hosted platform and, in some cases, an
upfront set-up fee, meaning that they benefit from a variable cost structure. Equally importantly, by deploying
hosted solutions, banks also benefit from speed to market when launching new SCF programmes for their corporate
clients, and offering them enhanced services.
• Quickly tailored to suit: offers Trade Portal for Multi-Bank (MTP for Multi-Bank), a front-end solution for trade
transactions, as an ASP service to both banks and corporate looking for speed and ease of implementation. ASP-
delivered solutions is made available directly to corporates as well as banks, as a “generic product” that can be
quickly tailored to meet different corporates’ programme needs, and then rolled out across multiple geographies.
• Given the current corporate client demand, and the fact that supply chain finance is becoming more complex on the
technology and services side, banks are asking themselves whether it makes sense to continue supporting their own
solutions. Working with us allows banks to speed up their time to market with supply chain finance programmes and
reduce technology development expenses
• Working in this way not only enables banks to cut the costs and overheads involved in running their own installed
solutions but can help them generate new opportunities for lending because, by collaborating with an ASP, they can
quickly satisfy corporate clients’ requests for transaction-specific, on-demand SCF services. Banks can also boost
their revenues by providing new clients with supply chain services at no extra cost to themselves.
ASP model & SCF Services
• Aside from hosting the software, ASP SCF Tech. providers can play a much bigger role in the establishment of SCF
programmes by helping buyers to prioritise which suppliers should be included, and determining programme
parameters in terms of liquidity, currencies and geographies.
• Buyers can also take advantage of working capital advisory services to optimise their working capital, take help in
short listing Financial Institutions/Banks to work with.
• Suppliers are offered a range of SCF enablement and education services to ensure that they understand the value of
financing provided and are trained in the platform’s use.
• The GSCF Technology provider are/can be actively involved in the entire roll-out of a programme from satisfying the
procurement needs of the buyer to working with the suppliers, educating them and enabling them to get settled on
the system.
• Tech. providers can advise buyers on their working capital, which means that we have to look at the value offered
by different suppliers/dealers. They also provide buyers with a detailed analysis of their supply chains.
• By using an ASP, corporates are not tied to one particular bank’s platform, and can select and change their bank
funding providers as required – without having to change the technology used.
• However, with ASP solutions, security will always be a major issue as banks are worried about information being
held on a server which is not theirs. If a bank installs the software at its own end, then the information held will be
protected by its own corporate security systems and firewall. This shall still remain a cause of concern and a
challenge for GSCF Tech. Service provider. Generally the Corporate, their Business Consultants as well as Retained
agents in various countries work with the Tech. Provider to chart a workable process & get banks/FIs onboard
though Tech. Providers are increasingly looking to internalize the skills to hiring requisite talent or working out
suitable cooperation agreements with other service providers so that they can bunch the services under one roof.
Strategies for Success
Innovative, Collaborative, MindSet
• Supply Chain finance requires the collaboration of multiple parties to succeed. Furthermore, it requires
an innovative mindset as many of the best solutions will be relatively non-traditional solutions
compared to the non-collaborative silo solutions traditionally employed by many business units.
Practitioners must be prepared to embrace new ways of doing business in order to achieve the full
value that is there for the taking. It takes more than just "thinking outside the box". It takes a
commitment, and a drive, to continually innovate the business to the next level.
Align Purchasing, Engineering, and Finance
• Purchasing, which includes logistics for the purpose of this wiki, is responsible for many of the payables
that end up in accounts payable. Engineering, responsible for New Product Design (NPD), is responsible
for much of the product cost, baking in up to 80% of the costs in the design phase. Finance is
responsible for making the payments generated by Purchasing and generating the reports necessary to
comply with federal regulations, such as Sarbanes-Oxley. Thus, in order to reduce operating costs and
optimize working capital, all units need to work in unison.
Create a Cross-Functional Team
• Aligning purchasing, engineering, and finance is a great start - but it's not enough. To truly succeed,
each of these units will need to work together on a daily basis. This will require a cross-functional team
whose driving goal is to optimize costs across the supply chain while not only preserving, but increasing
value to all parties. This will include increasing quality, reliability of delivery, and reducing risk as well.
Employ Capital and Cash Management Tools
• Be sure to make heavy use of automation. Manually-intensive financial transaction and trade document
processing leads to long processing times, poor visibility, and high transaction costs. Well designed e-
Procurement and e-Payment systems can perform 2-way and 3-way matching and automate routine
transactions within pre-defined contracts and tolerances.
Strategies for Failure
Shifting Inventory to Suppliers
• With increasing costs across the board and little or no room to increase prices, companies are scrambling for new ways to increase
profits. This has resulted in many companies scrambling to find new ways to reduce inventory and reduce one of the biggest costs
on their balance sheets - inventory carrying charges. Unfortunately, many of these companies have chosen the unenlightened
solution of simply delaying purchases until the last minute, which forces their suppliers, who are often ill-equipped to do so, to hold
the inventory instead. Considering that most suppliers have to wait an unduly long time between their initial cost outlay to make a
product and the eventual payment for that product in an environment where many buyers are now demanding payment terms that
include 60, 90, or even 120 Days-Payable-Outstanding (DPO) and that most do not have large storage facilities or inventory
management expertise, this drives up their costs from all angles. Their financing charges go through the roof as they have to take
out more high-cost short-term financing, often at rates of 20% to 40% per annum (which are especially common in developing
economies), their costs of operation go through the roof as they have to either acquire additional assets or pay a third party to
manage the inventory, and their opportunity costs rise as they are prevented from ramping up production, due to lack of funds and
storage, on New Product Development that could ultimately prove more profitable to them, and the buyer.
Increasing Days Payable Outstanding
• One of the the primary actions that buyers who are new to supply chain finance take is to extend payment terms for their suppliers,
which often have constricted access to short-term financing with a significantly higher cost of capital. This cost-shifting to suppliers
might result in better Days-Payable-Outstanding (DPO) statistics to the buyer in the short term, but ultimately results in a less
financially stable, and thus higher-risk supply base, and, eventually, an overall higher cost of goods sold versus competitors who
have mastered sound SCF practices.
• Strapped for cash, and lacking adequate access to affordable capital, these suppliers may be forced to delay raw material ordering,
squeeze work-in-process inventories, or skimp on plant maintenance or quality processes. Each of these options negatively impacts
the buyer's return on investment and could lead to significant supply shortages, especially if demand spikes.
Mistaking Early Payment Discounts and Factoring for Financing Options
• Early payment discount programs, regular or automated, do not address the root causes of financial flow inefficiency and can in
fact exacerbate the underlying drivers. Instead of shifting inventory to a supplier, you're essentially shifting costs and this often
results in cost increases, rather than cost reductions, across the supply chain.
 “Best Practices”- Supplier
Client Role
•
Acquisition
Set program goals based on Supplier categorization/analysis
• Set specific procurement manager goals
• Ensure procurement is adequately trained on program message  
• Establish procurement liaison to provider
• Provide target Supplier contact list (financial contact if possible)
– Follow-up with Suppliers on terms extension
– Follow-up with unresponsive suppliers
– Meet regularly with provider to review progress
Role of Provider
– Performs Supplier analysis
– Works with client on Supplier acquisition plan strategy
– Train client’s procurement team on the solution
– Work with Suppliers to demonstrate benefits they can achieve through the program
– Set up Suppliers and conduct supplier training

Program Key Success Factors

Single integrated solution:
– Seamless deployment of the program is dependent upon provider’s capabilities to execute all aspects of the program, including
•Owned-and-operated web-based platform
• Payments, including cross-border and foreign currency Documentation and funding of AR purchases
•Supplier on-boarding:
– A Supplier Finance program’s success is measured by the suppliers’ participation,
– Designing a successful program requires financial expertise to dimension benefits and strategize implementation,
– Provider’s experience drives state-of-art materials demonstrating program’s value-add to suppliers, – Dedicated team in charge of approaching
and on-boarding vendors
Funding:
– Large programs require a lead agent to raise adequate capital among investors,
– In-depth knowledge of investor marketplace is key to ensure that capital availability does not hinder program’s
ramp-up and growth
Reporting:
– Immediate and comprehensive reporting available to all stakeholders
 “Best Practices” – Dealer
Client Role
•
Financing
Set program goals upfront (market share initiative, monetization of receivables, off-balance sheet treatment, etc.) and
manages to these goals
• Designate the desired size and parameters of the program (i.e. regions, countries, currency, number of Buyers,
receivable asset size, DSO enhancement, etc.)
• Include Treasury, Accounting, and Sales in the process
• Agree on implementation plan and timeline
Role of Provider
• Manage the implementation of the receivables portfolio finance process in close coordination with client
• Deliver the financing, liquidity and other strategic objectives, as designated by client
• Work with Buyers to demonstrate benefits they can achieve through the program
• Provide flexibility to program to add Buyers and countries, as needed
• Work closely with client to manage the program on an ongoing basis

Program Key Success Factors

• Single integrated solution
Automated global, regional or country solutions for managing receivables and improving cash conversion cycles
Alignment of strategic goals with Treasury, Accounting, Procurement, and Sales functions results in the most successful programs
• Solutions implemented that benefit both the Seller and Buyer have the most success – Opportunity to increase sales and shareholder value
Risk mitigation
Providing liquidity to Buyers
• Funding capabilities
Large programs require a banking partner that is able to provide financing on a global basis – In-depth knowledge of local marketplace
is key to ensure capital availability
Stability and longevity of programs are essential
• Reporting & Servicing Capabilities
Operational and servicing support which includes the collection of data and timely reporting detail for each buyer, country, region, and
global consolidation
 Providing Credit and Liquidity to
Supply Chain Financing
• In response to the growing concern over decreased liquidity for global trade, many
governments, through their stimulus packages and/or established ECAs, are
partnering with exporters and their banks in a series of global trade programs to
mitigate cross-border risk in the supply chain
• ECA trade programs aim at reviving the private market and improving global trade
flows
• This type of government backed receivables financing counters high lending costs
between banks and Suppliers
• Supplier Financing programs supported by ECAs offer more competitive pricing for
companies while substantially limiting the amount of capital required to be held on a
lender’s balance sheet
• Key benefits
– Cash flow certainty
– Reduces non-payment risk
– Incentive to expand into new markets
– Allows more attractive credit terms to buyers – Policies attractive to lenders to provide liquidity
 
 Some Country Models:
Korea
TRADERS
SINGLE
WINDOW
3
Trade Leads & Financial
PORTAL
Overseas Ads Institution
GATEWA
E Marketplaces U Trade Hub Y KFTC, SWIFTNet,
E Biz sites TSU, Bank of
InfoTrade sites Korea, Banks,

2
Foreign G4C Logistics Foreign Exchange
Marketing Settlement
Exchange
e-Services
Customs Network
Credit

1
Evaluation
Credit Info Data Warehouse Logistics
Co.
Korea Export Shipper/Airliners
Ins. Corp. e-Trade Document Repository Forwarder
CY, Bonded
Warehouse
Licenses & Messaging Hub KLNET, KILC
Certification
Union/Assoc. Global Networking
KCCI Customs
Quarantine Station Overseas Intl FinancialSettlement
Insurance Co.
ICC Korea
Branch Customs Service

5
Private Inst.
Customs Broker

Source: KTNET PAA

Foreign
Suppliers
4