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Trade & Financial Supply Chain Management

Trade is the lifeblood of the global economy. Many companies now put together their products and services suppliers from all over the world and sell their products and services world-wide using a physical supply chain - the flow of goods, and a financial supply chain - the flow of funds, as shown below.

 

Financial supply chain management involves reacting to the key events in the physical supply chain to achieve maximum FSC efficiency by integrating, maximising and optimizing many of the standard cash and treasury management techniques and processes as the figure below shows.

Physical Supply Chain Events and Financial Supply Chain Management
Source: J&W Associates Copyright© 2011

Most companies have well developed mature physical supply chains. Over the last couple of years the main focus of most companies has been on 1) ensuring their suppliers have enough supplies and capacity to fulfil their needs and 2) improving and fine tuning their Financial Supply Chains (FSC). Company financial performance is now, more than ever, linked the efficiency of their supply chains. This requires collaboration between buyers and suppliers in all parts of the supply chain world-wide which Ariba calls Collaborative Business Commerce. Companies are now collaborating in product development, helping to train workers of their suppliers, collaborating in introducing better labour practices and in many other ways.

Improving Financial Supply Chain Efficiency
Key steps in improving the efficiency of financial supply chains include:

  • centralise and consolidate FSC record keeping and control so that the company can have full visibility of all processes and commercial relationships in the FSC
  • eliminate paper based processes
  • improve cash flow management predictability by only using e-invoicing and electronic payment systems
  • accelerate both the procure-to-pay cycle and order-to-cash cycles and improve the overall cash cycle.

Financial Supply Chain Services
Banks and third party suppliers provide services across the whole FSC. These can be grouped into four types 1) trade / supply chain platforms and networks which support trade around the world, 2) trade transactions services providing the traditional LCs and DCs and the new open account services, 3) trade and supply chain financing for all the various buyers and sellers in the supply chain, and 4) trade and counter-party risk mitigation services that protect buyers and sellers from the risks of global trade.

Types of FSC Services


Source: J&W Associates Copyright© 2011

These services are covered in turn in this section.

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