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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.

Peter Radcliffe, executive chairman of Accountis, a Fundtech company that provides an e-invoicing solution, says visibility into the financial supply chain creates opportunities for banks. "This will allow banks to provide services like invoice discounting and factoring, and they won't have to handle paper," he notes. "They receive an electronic copy of the invoice, and they know it has been received by the purchaser and that it's scheduled for a payment. This gives the bank a greater opportunity to be more dynamic."

Creating an End-to-End Supply Chain Solution

This past year, RBS went live with the Accountis solution. The e-invoicing service complements bank clients' ERP systems, says the bank's Watkinson. "We want to help clients process invoice information in a cost-effective and compliant manner," he explains. "We want to support and complement their ERP systems. ... We want to help them get the information in and out efficiently."

One way RBS supports its corporate clients is by helping to on-board their trading partners to the service hub. "We're creating a network where all the participants can connect to each other," Watkinson relates. "We host and run the service. It is ERP-independent, plus we don't force our customers to change their accounting systems. It is easy to use because it interfaces with their ERP systems."

Most of the large, money center banks are attempting to establish this kind of hub. Mike Quinn, managing director responsible for product management in the global trade services unit of JPMorgan ($1.8 trillion in assets), says the New York-based bank is committed to creating an end-to-end trade finance solution for its large corporate clients.

"Our services range from classifying a part for duty purposes to license determination to clearance of goods resulting in cash," he relates. "Straight-through processing is more than just going from point to point. This is taking data from its inception and enhancing it in the physical and financial supply chain."

BofA's Baker looks at FSCM as the convergence of trade and treasury management. "It involves aggregating those technologies for the best value proposition for our clients," he explains. "Banks have been investing to upgrade and globalize their infrastructure to bring clients greater value."

The bank offers Bank of America Direct Trade Services, an integrated trade and treasury platform for its clients. An important component of the service, according to Baker, is electronic document preparation, which helps cut down on paper pushing. However, he notes, whether a bank builds in-house or with a technology partner, there is no one-size-fits-all solution for FSCM, as each client will have specific needs.

According to Deloitte's Doroszczyk, developing an integrated FSCM solution still requires a high degree of technology customization. "There's nothing off-the-shelf yet," he says. Due to the varying requirements of the different industries banks deal with, it just isn't feasible to develop a plain vanilla solution, Doroszczyk adds. "To develop the supply chain concept, banks have to be detailed to the industry they're dealing with," he explains.

Making Connections

Currently, BofA's Baker says, his bank is working to plug into its clients' systems. "Our challenge now is to seamlessly integrate with our clients," he relates. "With global supply chain [management], the key is the linkages you create. Connecting with and integrating the buyer and seller in multiple markets and meeting local finance needs requires a good deal of work."

Not only must banks create linkages to their clients, they also must establish connections to other financial institutions. Some of the largest corporates can have dozens of financial institution relationships due to the number of countries in which they do business. But Sterling Commerce's Gahagan says many businesses wish they could cut down on the number of banks with which they must deal.

"Corporate treasurers want to simplify their overall bank relationships. They want flexibility without having to deal with every bank in every country," he explains. "You won't see corporates dealing with just one bank, but there will be fewer of them, especially as the banks create linkages with clients' systems. Corporates want creative ways to streamline the interface with their banks." Gahagan notes that Sterling offers a solution that helps corporate treasurers centralize the message flows among their systems and their banks' systems so they have more flexibility to work with multiple financial institutions in their supply chain dealings.

However, the challenges of banks embedding themselves into their corporates' ERP systems go beyond technology -- a shift in mind-set also is required, says Steven Starace, director and head of trade and supply chain finance with technology services firm CGI (Montreal). "It's a struggle -- you're not just selling the corporate a product; you must also be a collaborator," he remarks. "And you're not just working with one department in the corporation anymore, either. Both sides are going through an evolution to be more open and collaborative."

For many banks, this process is proving to be a challenge, says SWIFT's Chris Conn, regional solutions manager, supply chain services. "This is going to take a lot of hard work because [FSCM] is outside banks' traditional trade discipline," he asserts. "It can be a challenge for some banks because they now must deal with the logistics department, even the merchandising department in some cases."

As a result of this transformation in their services, banks are beginning to remake their sales forces and are even hiring people from the physical supply chain world and teaming them with traditional trade bankers. "Once banks have articulated the value proposition, corporates are receptive to it," Conn adds.

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