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Financial Supply Chain Management Continues to Evolve

Financial supply chain management continues to evolve as a promising business line for banks, particularly as corporate clients look to maximize efficiencies during the economic downturn. But creating connections among all the participants in the supply chain remains a challenge.

In the world of treasury management, corporates (at least the largest ones) have always placed pressure on their banks to provide innovative products and services designed to optimize performance and cost savings. In the current economic environment, their petitions are likely to become louder as companies are impelled to shore up their working capital and every new expenditure is subjected to intense scrutiny.

With the world economy in flux, banks and their clients want to find even more ways to squeeze efficiencies out of their systems. One area that is ripe for reevaluation is financial supply chain management (FSCM). FSCM consists of services that bring together data and transactions from trade and payments activity in a manner that provides the parties in the supply chain with all the information they need to effectively complete their business transactions -- at least, that is the ideal for which banks, corporates and technology vendors strive. In reality, FSCM is still evolving, and the services and technologies that crop up to support it need room to incubate. At its core, however, FSCM is about efficiency -- something that never goes out of fashion, particularly in tough times.

"The economy could have an impact on how we deal with our corporates, but it presents an interesting opportunity," notes Bill Grace, VP, global treasury management product manager, with Cleveland-based KeyBank ($101 billion in assets). "Everyone will want solutions that focus on doing more with less. If the ROI is attractive and helps reduce overhead, that's where the success will be."

According to Jim Gahagan, global industry executive for financial services with Columbus, Ohio-based business process integration provider Sterling Commerce, until things settle down in the markets, controlling cost will play an even greater role in companies' purchasing decisions. "The economic situation is the overriding factor in any technology investment for banks and corporates today," he says. "Any technology initiative is under more scrutiny around its ROI. But streamlining the interactive supply chain is a value to corporates, and they understand this."

To Christopher Baker, SVP and trade executive for the Americas and Europe for Charlotte, N.C.-based Bank of America ($1.7 trillion in assets), it certainly is not "business as usual" for the bank as it deals with its commercial customers. "As the economy tightens, liquidity follows," he explains. "But there is a recognition that if a supplier needs faster working capital turnaround, there is a greater willingness and recognition [that it is] a co-equal in the supply chain ecosystem. As we build the global supply chain for key buyers, suppliers and financial intermediaries, they will all see they have a stake in making it work efficiently. It's a mentality that will grow."

But always at the core of FSCM is process optimization, adds Ian Watkinson, head of e-invoicing with Edinburgh-based The Royal Bank of Scotland (RBS; US$3.5 trillion in assets). "The trend among our customers is that they are looking at ways to optimize their processes," he relates. "That's the heart of what they are seeking."

A Portal Into Supply Chain Activity

While banks take numerous approaches to meeting the FSCM needs of their corporate clients, some services are fundamental to any FSCM offering. For instance, the portal concept has been gaining steam. These Web-based hubs are designed as repositories of information for the buyers (banks' corporate clients) as well as the suppliers in the chain.

According to Enrico Camerinelli, a senior analyst in Boston-based Celent's banking group, "visibility portals" are key to supply chain management. "Visibility portals are where the buyers and suppliers meet and exchange bills and invoices," he explains.

Christopher Doroszczyk, a principal in the financial services arena with New York-based Deloitte, says portals should constitute the core of FSCM offerings. "The biggest technology today in this area is around client access -- the ability of banks' clients to access a plethora of services offered by the financial institution," he relates.

When this is combined with other services, such as electronic invoicing and the integration of supplier invoices with buyers' payments, banks have a well-rounded supply finance offering, claims Doroszczyk. "This is beyond a Web portal because you're offering different services and the ability to settle in different markets where the portal lets you check transactions and pay," he continues. "It connects corporates' ERP [enterprise resource planning] systems to the portal, their positive pay to the portal -- they can do reconciliation and can move to different liquidity activities. It's like a portal on steroids."

According to George Ravich, CMO with Fundtech in Jersey City, N.J., more visibility enables banks and their corporate clients to more efficiently fund the supply chain. "It's like just-in-time cash," Ravich comments. "This drives the working capital needs of a company. It's a business we think the banks should get into."

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