AI boosts supply chain agility

Artificial intelligence (AI) can potentially enhance supply chain agility, according to a KPMG report titled “Raise Your AI Short Game to Boost Supply Chain Agility.” The report emphasises that businesses are grappling with compound volatility, necessitating the need for supply chain flexibility. AI emerges as a technology that can help companies anticipate market volatility, make complex network decisions, and achieve business objectives in the short term. In fact, 57% of the executives who participated in the 2023 KPMG Global Tech survey stated that AI will help them achieve their short-term goals.

The report further suggests that AI can be incrementally deployed to generate value within months, not years. Utilising the right approach, AI - both traditional and generative - can improve fiscal year performance while accelerating outcomes of long-term investments.

“Long-term supply chain investments can be challenging coming out of an inflationary period that saw aggressive interest rate hikes,” said Jim Lee, Supply Chain AI Leader at KPMG. “Interim solutions are needed to provide supply chain flexibility in the short term. Maintaining focus on the short game is crucial for success in the long term, and AI can help organisations achieve this.”

The report also found that AI can generate incremental value at a lower cost, making it a key technology for achieving short-term business objectives in supply chain management. It also included some practical use cases, including a manufacturing organisation that used AI to address short-term demand volatility, resulting in a 20% increase in overall plant capacity and negating the need for physical expansion. Elsewhere, a distribution organisation used AI to shift from reactive retention to proactive prevention of employee turnover, enabling management to target a 40% reduction in attrition.

“Supply chain organisations face the challenges of labor attrition, activism, and availability, with labor strikes over the past year that have resulted in significant productivity losses,” added Lee. “While automation is becoming central to long-term strategies, AI can help mitigate losses in the short term by anticipating labor market variation.”

Regarding supply chain capital requirements, Lee said, “The high cost of capital and difficulty in obtaining financing has hindered supply chain network expansions over the past year. But the use of AI and advanced algorithms can help optimise asset utilisation, allowing for more efficient use of resources and reducing the need for additional capital.”

 

Hong Kong enters phase 2 of e-HKD pilot programme

The Hong Kong Monetary Authority (HKMA) has launched Phase 2 of its e-HKD Pilot Programme, which aims to further explore innovative use cases for an e-HKD in Hong Kong.

The HKMA completed Phase 1 of the pilot programme in October 2023 and studied domestic retail use cases in various areas such as programmable payments, settlement of tokenised assets, and offline payments. Building on the success and experience of Phase 1, the next phase will delve deeper into select pilots from Phase 1 where an e-HKD could add unique value, namely programmability, tokenisation and atomic settlement, as well as explore new use cases that have not been covered in the previous phase. 

An enhanced e-HKD sandbox, leveraged on the wholesale central bank digital currency (wCBDC) sandbox to be built under Project Ensemble, will support Phase 2 of the e-HKD Pilot Programme. This will accelerate the prototyping, development, and testing of use cases bynts and pilot participa facilitate the study of interoperability and interbank settlement between e-HKD and other forms of tokenised money.

Research on the e-HKD will continue to underpin the HKMA’s broader work in exploring the roles CBDCs could play in a future digital money landscape. The HKMA has been conducting many in-depth research projects with the CBDC Expert Group on topics including programmability, privacy and interoperability. The outcomes and insights gained from both phases of the e-HKD Pilot Programme and the research by the CBDC Expert Group will facilitate the HKMA’s study on the possible implementation of an e-HKD.  The HKMA will also continue to engage local and international stakeholders regarding the latest development of CBDCs.

 

Global supply chain capacity pressure signals manufacturing recovery

The GEP Global Supply Chain Volatility Index - an indicator tracking demand conditions, shortages, transportation costs, inventories and backlogs based on a monthly survey of 27,000 businesses - rose further in February. While global supplier capacity is still underutilised, the index increased to -0.08, from -0.12 in January, its highest level in 10 months. After nearly a year of declining supplier activity, capacity pressures have begun building again.

Global demand for raw materials, commodities and components also showed signs of recovery in February after nearly two years of decline due to destocking and high inflation. Input demand was stable in Asia, signalling restocking and economic resilience across the region. Similarly, evidence of inventory building in North America suggests the continent’s manufacturers are preparing for growth. In fact, capacity at suppliers to North America was stretched for the first time since March 2023, with backlogs ticking higher as a consequence.

Notably, GEP reports it continues to see evidence that the Red Sea attacks have had a negligible impact on global supply chains. The most visible effect was an uptick in transportation costs in January, but global logistics costs fell during February.

Regionally, the North American index rose to 0.17 from -0.33, its highest since January 2023, showing stretched supplier capacity as manufacturers are boosting inventories and preparing for near-term production growth. The European index rose sharply again to -0.41 from -0.63. While this is a sizeable improvement, the continent is still experiencing economic stress. Factory purchasing activity in Europe remained depressed amid the ongoing recession in Germany’s manufacturing industry, but recoveries in southern Europe supported the index’s move higher. In the UK, the index hit a 10-month high of -0.34, up from -0.62 previously. UK companies report a marked uplift in safety stockpiling activity due to Red Sea disruptions. In Asia, the index stabilised at -0.02, falling slightly from 0.14 in January as sharp manufacturer purchasing growth in India is offset by weaker demand in Japan, Vietnam and Taiwan.

“Globally in February, we’re seeing supply chains being more utilised, suppliers are busier, and input demand and manufacturing are turning a corner after nearly a year of low capacity utilisation,” explained Mukund Acharya, vice president, consulting, GEP. “Suppliers to North America were the busiest globally last month, spurred by the Inflation Reduction Act (IRA) and Bipartisan Infrastructure Law (BIL) driving economic activity in construction, semi-conductors, and renewables.”

 

Assessing the changing face of ETF administration

Calastone has released its latest Exchange Traded Fund (ETF) white paper, which examines several processes that occur across an ETF's lifecycle, assesses the industry’s readiness to tackle change, and examines how ETF asset servicers need to adapt to surmount these challenges. Additionally, the white paper explores the increasingly diverse and complex ETF market and reveals new data from a survey of 104 personnel working for fund issuers, 114 in fund administration, and 95 in authorised participants internationally.

Since its inception over 30 years ago, the ETF market has grown astronomically as new entrants flood the market, introducing unprecedented levels of complexity, diversity, and pressure on ETF asset servicers. As a result, asset servicers are forced to adapt to keep up with the evolving needs of their fund issuer clients, but many are struggling to do so.

According to Calastone’s white paper, the lack of progress around automation, particularly around the creation and redemption process in the primary market, has been raised by asset servicer clients as a problem. Key findings from the white paper further reveal a misalignment between the priorities of asset servicers and issuers in this area:

• 57.6% of issuers said the creation and redemption process was the most important factor when measuring the success of their ETF fund administration services.
• 41.4% of issuers said that the creation and redemption process was one of the two areas of ETF servicing that most needed improvement.
• However, just 22.8% of asset servicers said enhancing the creation and redemption process was one of their two main business priorities, putting it behind fund accounting, transfer agency, technology and operational support and regulatory compliance and reporting.

“The ETF industry is currently witnessing unprecedented levels of growth and the requirements of fund issuers are becoming increasingly complex,” said David McGuinness, Product Director at Calastone. “The creation and redemption process underpins primary market liquidity and is an area that asset servicers must focus on if they are to retain and win business moving forward. Asset servicers need to look at how they can upgrade their systems to improve transparency and enhance standardisation across their core processes, as this will ultimately benefit the end investor.”

 

European retail investors strongly bullish on natural gas in February

Spectrum Markets, a pan-European trading venue for securities, published its SERIX sentiment data for European retail investors in February, revealing increasingly bullish trading behaviour linked to natural gas. The price of natural gas has declined since mid-January, although there has been considerable volatility. After peaking in 2022 at around US$10, the price has since been falling in 2023 and has rarely exceeded US$2.

Spectrum Markets made instruments on natural gas available in March 2023 in response to investor demand, and it has seen bullish SERIX sentiment for all but one of the months since then, reaching 119 points in February 2024. The SERIX value indicates retail investor sentiment, with a number above 100 marking bullish sentiment and a number below 100 indicating bearish sentiment.

“There are several reasons why the natural gas price has fallen since the beginning of the year,” commented Michael Hall, Head of Distribution at Spectrum Markets. “Among the factors are the attempts to diversify energy sources as a means of reducing emissions, as well as a decreasing domestic demand and high inventories resulting from a mild winter, coupled with a high production volume.”

From a European perspective, there is a different view on this: Investors are noting a stable demand for LNG gas deliveries and observing increasing LNG shipments from the US to European ports due to Europe’s efforts to reduce dependence on Russian natural gas supplies. According to the Council of the European Union, the EU is already the largest LNG importer in the world. 

“The ongoing conflict has prompted EU member states to further develop their LNG infrastructure and import capacity,” added Hall. “That is why retail investors have tried to capitalise on the currently low price and took a long position on natural gas.”

In February 2024, order book turnover on Spectrum was €213.6m, with 34.5% of trades taking place outside of traditional hours (i.e., between 17:30 and 9:00 CET). Some 80.8% of the order book turnover was on indices, 4.5% on currency pairs, 6.6% on commodities, 5% on equities and 3.1% on cryptocurrencies, with the top three traded underlying markets being DAX 40 (30.7%), NASDAQ 100 (23.7%), and DOW 30 (10.1%).

Looking at the SERIX data for the top three underlying markets, the DAX 40 sentiment dropped from 99 to 93. The NASDAQ 100 saw a similar decrease from 98 to 96, while the DOW 30 increased slightly from 98 to 99.

 

Visa and Taulia Partner to drive global availability of embedded finance

Visa and Taulia, an SAP company, have announced a partnership to make embedded finance accessible to businesses worldwide. The collaboration will incorporate Visa’s digital payments technology into Taulia Virtual Cards, a solution that integrates with SAP enterprise resource planning (ERP) solutions and business applications for a seamless and streamlined payment experience for buyers and suppliers.

Visa and Taulia’s partnership aims to simplify payments across the business ecosystem by enabling virtual payment credentials to work natively across SAP business applications. Through the planned integration, Visa’s APIs will embed virtual payment credentials, acceptance and enablement solutions directly into SAP business applications.

Corporate buyers are turning to embedded virtual card solutions to deliver a seamless payment experience where users can remain in their ERP or business applications to recognise mass efficiencies. The joint solution is designed to help CFOs, procurement, and accounts payable teams automate payments to suppliers, which is especially helpful for paying one-time suppliers as this eliminates the need to create full master data in the system, a process that can take weeks or even months. Suppliers will gain improved cash flow and enhanced visibility, alleviating friction across B2B transactions. This new partnership and resulting solution replace a historically manual buyer reconciliation process.

 

The Clearing House’s ACH Network sees rising transaction volumes

Transaction volume on EPN, the ACH network from The Clearing House, grew 8% in 2023, outpacing the broader ACH market and continuing yearly growth. In 2023, EPN processed over 19 billion transactions worth US$52.4 trillion.

Overall, the 2023 US ACH network volume increased by 4.8%. EPN carried approximately half of the overall 2023 US ACH commercial volume and has averaged 7.4% growth since 2021 as businesses and consumers continue to embrace electronic payments.

Growth in ACH volume has been broad across all user types and use cases. Business-to-business payments increased almost 11% year over year. Direct deposit volume and person-to-person (P2P) transfers also grew steadily. Consumer-initiated payments, such as account-to-account (A2A) transfers and bill payments, also increased as consumers moved to faster payment options and away from paper cheques.