Banks and corporate treasury suppliers are under extreme pressure to improve their performance by cutting costs, refocusing and developing new strategic direction(s), for example: 

• RBS exiting the global cash management business was the result of strategic refocus
• the extreme pressure Antony Jenkins, ex-CEO on 8 July 2015 of Barclays, found himself under to cut costs whilst improving moral and standards, and their share price
• the private equity owners of the IT2 TMS decided to cash in and sell the company to Wall Street Systems/Ion Trading
• Lex in July 8th’s Financial Times questioned the strategic coherence of universal banks, “None has put forward a convincing argument for why investment banking and retail banking need to be housed in the same group.” 

No wonder corporate treasury departments feel exposed and at risk with their banks and suppliers. However, this is nothing new. Vulnerability to key suppliers has always been present in any business. What is new is the pace of rationalisation and refocusing. Increasingly suppliers, banks and on-banks, are going to be exiting countries, regions and markets with little thought for their customers (until after the decision is made).

Wikipedia describes supplier risk management as, ‘an evolving discipline in operations management for manufacturers, retailers, financial services companies and government agencies where the organization is highly dependent on suppliers to achieve business objectives.’ This is becoming a skill in corporate treasury. How can corporate treasury departments protect themselves from their suppliers?

Bank and corporate relationship management

Corporate treasurers have always believed in managing and treating with care the relationships with their banks. Greg Croydon, Director, Treasury and Group Pensions at IMI the UK engineering company, in his talk at the ACT Cash Management Conference in 2013, explained why he believes that:

• corporates should regard banks as partners / stakeholders who provide investment for the balance sheet and growth, and also provide valuable services
• banks should also be coming up with ideas to help take the business forward – whether in risk management, enhanced services and solutions or introductions to new business partners
• banks should be seen as an enabler to our business process as well as a provider of liquidity and flexibility

While Rajesh Mehta, Citi’s Head of Treasury and Trade Solutions, EMEA, believes that banks need to remain very focused on what they do and that any changes or developments to the business that may have an impact is communicated in and clear and honest discussion with the client. He has found that, “At the end of the day, if you are communicating well, you will maintain a good client relationship Everyone accepts that these relationships have to be a ‘win-win’, otherwise it doesn’t work.”

Managing supplier risk

Some of the key lessons on how to manage supplier risk that have emerged over the last few years include:

1. understand the viability - both in the short-term and long-term - of your suppliers’ business model of the particular service and/or of the organisation, and assess how at risk your department is
2. monitoring for stability beyond financial data, including criminal and terrorists, and exposure to geopolitical threats, acts of nature, etc.
3. cultivating strategic supplier relationships for the long-term using supplier scorecards for continuous improvement, and using benchmarks for measuring supplier performance
4. have and/or develop alternative supplier options just in case, e.g. corporate treasury departments are accepting more bank relationships to minimise risk of ‘being left in the lurch’.

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CTMfile take: Supplier management has always been a vital skill in corporate treasury, now it is even more important.