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T R E A S U R Y S E R V I C E S
Treasry and the Spply Chain:A New Mdel r Wrking
Capital Management
understanding physical and nancial spply
chain relatinships can generate wrking
capital management strategies r grwth
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Best-in-class cmpanies align spply chain and treasry peratins in
rder t spprt the entire rganizatin’s crprate nance bjectives.
Treasry pressinals need t view nancial decisins as interlinked with
the physical gds mvement decisins made by clleages in lgistics,
prcrement and cmpliance nctins. understanding critical physical
and nancial spply chain dependencies will better prepare treasrers t
select the wrking capital strategies that drive crprate grwth.
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Financial Prle
Spply Chain Activities
1
Imagine an eager shpper wh enters
yr clthing stre lking r the latest
ashin. Her size isn’t in stck, s she
heads t the dr and crsses the mall
t nd what she needs at a cmpetitr.
A man enters an electrnics sperstre
t lk r the fat screen televisin
he saw in the Snday paper. It is nt
available, s he bys it nline instead.
Nw think a actry rshing t trn
t an rder r a key cstmer. Critical
parts arrive late, and the assembly line
shts dwn.
In each these cases, breakdwns in
the spply chain had a direct impact n
end cstmers and cst the cmpany
nt jst revene bt cstmer gdwill
— which takes its tll in lst tre sales
and higher csts. A smart spply chain
is key t delivering nt nly gds bt
reliable nancial perrmance as well.
There are certain times when an end
cstmer derives maximm tility rm
a prdct r service and is willing t paya premim. Fr example, an mbrella
has greater vale n a rainy day than n
a snny day. A Christmas tree is mch
less valable the day ater Christmas.
A cmpany able t deliver the right
prdct at the right time in an ecient
manner can maximize revenes and
keep csts dwn. Cmpanies that miss
the ptimal delivery windw, r drive p
their expenses in an ert t make the
windw (expediting with airreight, r
example) redce their ptential margin.
Extended glbal spply chains heighten
the risk “Diminished Vale”: the
prt pprtnity missed by cmpanies
when their spply chains ail t perrm
cnsistently at an ptimal level.
Intense cmpetitin and demanding
end cstmers have led t the
develpment increasingly cmplex
spply chains as cmpanies seek
niqe prdct mixes and lw-cst
advantage. The reslting glbal mdeladds a hst new challenges t spply
chain planning and prdct delivery, in
additin t sbstantially increasing the
risk that all players in the spply chain
will be aected by diminished vale.
Serving glbal markets cmpnds the
level risk.
The lnger r wider a spply chain
becmes, the mre inventry and
cash fw is cntained within it. Fr
mltinatinal rganizatins and theirsppliers, the glbal spply chain
has cme t represent a signicant
ser wrking capital within each
enterprise, an imprtant actr in the
nancial dynamics the entire spply
chain. Cnseqently, the pprtnity t
imprve spply chains shld be seen
as an pprtnity t imprve nt nly
physical inventry management, bt
nancial perrmance as well.
Regardless hw well it is managed,
the spply chain and the inventry it
delivers are signicant sers wrking
capital. Smart, nancial-riented
management the spply chain
prvides a ramewrk t discver and
realize nancial benets thrght the
cash-t-cash cycle.
A treasry manager wh nderstands
the nancial dynamics the spply
chain can emply an extensive array
tls and best practices t help
the cmpany meet its wrking capital
bjectives. Specically, by viewing
the spply chain thrgh a nancial
lens and eectively cperating with
internal partners in spply-chain-
related rles, treasry managers can
have a real impact n making their rm
mre cmpetitive. In eect, treasrymanagers can becme the lynchpin
a cmprehensive peratinal nancial
strategy that better manages wrking
capital and drives crprate grwth.
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Actins in the physical and nancial
spply chain are interdependent. An
actin in ne realm cases a reactin
in the ther — and nt always r the
better. A cmpany’s prcrement team,
r example, might switch srcing
rm Mexic t China in rder t ct
manactring csts. Thgh the
cmpany’s prcrement team was
able t redce pre prdct cst in this
scenari, transprtatin and lgistics
csts increased, as did the ncertainty
related t the extended transprtatin
netwrk. Pls, the cmpany lses
ptential savings available thrgh
NAFTA, the ree trade prgram
arrangement with Canada,
Mexic and the united States.
When viewed in parallel, the
nancial spply chain represents
the management cash and capital
as it spprts inventry and srcing;
the physical spply chain represents
2
the management prdct and
inrmatin. A cmpany mst
identiy any gaps in the bsiness
prcess/fw that create cstmer
satisactin prblems, add cst
r cycle time, and/r impact inventry
— whether these gaps lie in the
physical r nancial arenas, r bth.
understanding the nancial
prle spply chain activities is
critical t evalating alternatives (See
Figure 1). As treasry and spply chain
clleages evalate varis stages
their enterprise prcesses, it becmes
clear that mltiple wrking capital
reqirements are tied t physical spply
chain actins. Redcing the need r
wrking capital redces the cmpany’s
need r cash, thereby redcing the
cmpany’s dependence n tside
credit acilities and/r reeing internal
cash r alternative ses.
Integrating physical and
nancial spply chains
The fnancial supply chain
represents the management
cash and capital as it
spprts inventry and
srcing.
The physical supply chain
represents the management
prdct and inrmatin.
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3
PHYSICAL SUPPLY CHAIN SUPPLY CHAIN ACTIVITY FINANCIAL SUPPLY CHAIN
• TechnologyEncryption
•Models,Samples
• ProductInformation
• LabelingandMarking
• ResearchandDevelopment
• ServiceParts
• Production
• InternationalSupplier
• Foreign,DomesticandInternational
CarriersandConsolidation
• Broker/CustomsandTransferto
DomesticCarrier
• Importing
• Trafc
• Receiving
• Storage
• DestinationofGoods
BuyerofGoods
• Stores
• InternationalRelatedParties
•OEMs
• Distributors
SellerofGoods• Contract
• OrderManagement
• OrderFulllment
•Manufacturer,Distributor,
NonproductionorR&D
• Contract
•Manufacturers
• Distribution
• Trafc
• Export
• CustomsandForeignGovernment AgencyRequirements
• DomesticandInternational
CarriersandConsolidation
• Broker/CustomsandTransfer
toDomesticCarrier
• Stores
•OEMs
• InternationalRelatedParties
• Distributors
Research and Development Expense
Raw Materials
Selling, General and
Administrative Expenses
Balance Sheet as Finished
Goods Inventory
Income Statement as Selling,
General & Administrative Expenses
and Balance Sheet as In-Transit
Inventory
Income Statement as Revenue, Cost
of Goods Sold, and Selling, General
& Administrative Expenses and
Balance Sheet as Cash
Research and Development Design
Global Procurement
Logistics and Distribution
Import Location
Sales and Service Contracting
Manufacturing
Logistics and Distribution
Sales and Service
f igure 1
FINANCIAL PROFILE OF THE PHYSICAL SUPPLY CHAIN
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4
Trae Compliance Impacts
Supply Chain SuccessTrade cmpliance shld be a central
isse r crprate cers. Legally, it is
the bligatin every u.S. rm’s bard
directrs r senir management t
nderstand their cmpliance prgram
and t prvide reglar versight,
adeqate resrces and direct access
t the bard r cmpliance cers
— all in accrdance with the Federal
Sentencing Gidelines r trade
reglatin.1 Cmpliance isses dn’t
stp with crprate cers — spply
chain and nance exectives have
reasn r cncern as well.
Trade cmpliance inrmatin is a
cmmn element that helps tie nancial
and physical spply chains tgether.
The prper presentatin dcments
is reqired t satisy the nancial
bligatins within a physical spply
chain: dcments that veriy delivery
gds at a specied price, qantity
and lcatin, sing the cntracted
transprtatin methd. Trade
dcmentatin als recrds key data
elements that shw when wnership
gds is transerred rm spplier t
byer, and wh bears respnsibility r
dties, taxes and reight.
Elevated levels risk inevitably
drive csts higher and precipitatethe inecient se wrking capital.
Thse assessing the risk prle a
spply chain mst determine hw mch
incremental risk is being added by
decient trade cmpliance prcesses.
Cmpliance isses alne can disrpt
r break a spply chain: brder delays
de t pr dcmentatin, inability
t cmply with gvernment secrity
prgrams and inadeqate vetting
sppliers, cstmers and partners are
examples inadeqately managed
cmpliance. Penalties, lss crss-
brder trading eligibility and spply
chain bttlenecks are cmmn reslts.
Gd cmpliance practices can als
represent a cmpetitive advantage.
Achieving a desired trading stats,
sing ree trade znes eectively, and
leveraging Free Trade Agreements
(sch as NAFTA r CAFTA-DR) are all
examples ways in which cmpanies
can leverage trade expertise andcnvert a ptential challenge int
a cmpetitive advantage. Shld
an imprter r exprter rn al
gvernment reglatins, an active
apprach t cmpliance management
and planning can even prve t be a
mitigating actr.
Cmpliance ailres can inhibit the physical delivery
gds, which directly impacts nancial perrmance and
can be a drain n wrking capital.
1 united States Sentencing Cmmissin www.ssc.gv/gidelin.htm.
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5
Physical Supply ChainFailures Impact Finance
Tday’s extended glbal spply chains
cntain a high risk mving gds with
diminished vale: gds delivered t
market later than intended and missing
the ptimal prt windw. Csts
assciated with diminished vale can
prve particlarly steep in spply chains
that prdce and deliver seasnal,
ashin-riented r time-sensitive
gds, r r cmpanies sing jst-in-
time r lean manactring practices.
Examples we have bserved inclde
the late delivery back-t-schl items
(55% markdwns) and vital hspital
eqipment sch as MRIs (reslting
in 15% lwer prices). Additinal
diminished vale actrs t cnsiderinclde high restcking csts, the risk
litigatin rm liability lawsits and
ptential damage t the brand.
The impact spply chain ailres is
nt, hwever, limited t diminished
vale gds — it extends all the
way t a cmpany’s tp-level nancial
perrmance. In a stdy the impact n
cmpany valatin 800 spply chain
disrptins rm 1989 t 2000,2 rms
experienced 33% t 40% lwer retrns
n eqity ver a three-year perid,
beginning ne year prir and ending
tw years ater the annncement the
disrptin. In additin, the same stdy
shwed that cmpanies experienced
an average 13.5% increase in share
price vlatility in the year ater sch an
annncement was made.
Whether an rganizatin is a
mltinatinal, an entreprenerial
grwth cmpany r a sbsidiary lking
r eciency, the imprtance spply
chain management t the ptimizatin
wrking capital is indisptable.
Decisins being made abt inventry
are every bit as imprtant as decisins
regarding accnts payable andreceivable strategies, and tgether
they may help t answer sme key
qestins r treasrers: What is the
mst ecient balance cash,
inventry and nancing r the
enterprise? What risks des this
mix pse?
2 An Empirical Analysis of the Effect of Supply-Chain Disruptionson Long-Run Stock Price Performance and Risk of the Firm
by Vind Singhal and Kevin Hendricks
Spply chain ailres and
disrptins negatively
aect cmpany valatins
and cntribte t share
price vlatility.
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TRAdITIONAL SUPPLY CHAIN ACTIVITIES CAN bE
dIRECTLY LINkEd TO FINANCIAL REqUIREMENTS AT
EACH STAgE OF THE CYCLE AS FOLLOwS:
• Prouct development. As a cmpany cnceives
and designs a prdct, sppliers are selected and
vetted. The cmpany needs t calclate the ttal
landed cst the new prdct and nderstand the
ptential transprtatin reqirements rm varis
rigin lcatins while deciding n spplier payment
strategies.• Prouction. A cmpany then determines the best
srcing arrangement t maximize the vale their
cash by balancing cst with eciency. Sppliers
are then cntracted, payment terms are negtiated,
service levels are determined, the manactring
prcess begins and plans are made t mve the
nished prdct.
• distriution. Finished gds are mved t warehses
r end cstmers sing the mst cst-ecient
methd t meet timing and delivery reqirements.
Dcmentatin is created in accrdance with glbal
reglatry reqirements and distribted alng the
spply chain.
• Sellin. As the spply chain cycle clses, nal
dcmentatin is sbmitted, nancial settlement
is made with all parties and the entire prcess is
reviewed r eciency and accracy. Were the right
items delivered at the right time r the right cst?
Were they sld r the right price? Were all legal
bligatins met?
7
s
e
Post-ShipmentSupply Chain
Financing(receivables)
InventoryFinancing
Export ComplianceReview
Structured TradeFinance (buyer)
Commercial Cards
port Letters of Credit
Open Account Solutions
Order-to-PayI N
F O
R M A T I
O
N
M A N A
G E M E N T
M E N T
ME N T
I N V E
N T O
R Y
B U Y I N G
Jurisdiction
Determination/Export
Classification
Export LicenseManagement
RestrictedParty Screening(end customer)
order LogisticsManagement
Trade DocumentGeneration
BrokerManagement
Free TradeProgram
Management(solicitation &qualification)
AdvanceSupply ChainInformation
(C-TPAT, 10+2,
FAST, AEO)
HTSClassification Country
of OriginDetermination
ValueDetermination
ysis
I O N
O P M E N T
P R O D
U C T I
O N
P h y
s i c
a l
F
i
n
a n
c i a l
P h y s
i c a
l
R O V E M
E N
T
M A N
A G
E M
E N T
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8
Prouct developmentPhase: Sourcin to buyin
Fr internatinal spply chains, keeping
abreast glbal develpments is
indispensable. Cmpanies shld
maintain and emply p-t-dateknwledge shiting spply chains,
ecnmic and plitical develpments
in key srcing lcatins, changing
cmpliance and secrity reqirements,
reign exchange fctatins, labr
and cmmdity price indexes, ree trade
prgram develpment, prt peratins
and even weather.
Inadeqate planning and the ailre t
inclde a risk cmpnent in the initial
develpment and recasting phase canlater lead t spply chain breakdwns,
which inevitably signal a drain n
wrking capital. As cmpanies begin
the prdct develpment prcess, they
are challenged t srce materials and
calclate the nal cst gds. oten,
a cmpany’s spply chain peratin
des nt spprt the mst eective
verall bsiness mdel. Fr example,
Stage 1: Product Development Phase:
As a cmpany cnceives and designs a prdct,
sppliers are selected and ttal landed cst is calclated
t nderstand the ptential transprtatin reqirementsrm varis rigin lcatins. Cncrrently, spplier
payment strategies are determined.
rms may create prdct elements rm
“scratch” when srced cmpnents
are readily available; r they may
misread the market’s spply and
demand balance, reslting in delivery
the wrng prdct mix. Errrs
made at the start the cycle have acmpnding ripple eect thrght
the rest the spply chain.
Tangible bsiness impacts these
missteps inclde excess inventry,
bslescence and write-s. Stck ts
can ccr, which in trn case cstmer
dissatisactin and lst sales. Wrse,
attempts t mitigate spply chain
ailres can reslt in even mre csts
and risks. Premim reight services r
rsh delivery mean nt nly increasedcsts bt increased expsre t el
price escalatin and vlatility, as well as
risks inherent in circmventing nrmal
lgistics prcesses.
Mving rm indirect t direct srcing
carries its wn risks. Cmmn mistakes
made by grwing cmpanies inclde
nt accnting r “ttal landed cst”
(cst the gds pls transprtatin
ees, dties, taxes, etc.) and sing
cst as the primary criteria, which
inadvertently leads t selecting an
inapprpriate vendr that delivers pr-
qality gds. Qality isses maniest
themselves in rejected shipments and
scrap, higher rates retrns rm
cstmers, an verall increase in time
spent wrking with the spplier and
an increased need t carry inventry
bers t cver variability. In additin t
cstmer dissatisactin, the bsiness
impact pr qality can case an
increased variability in plan verssactal inventry psitins, leading
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bUSINESS PROCESS IMPROVEMENT STRATEgIES INCLUdE:
1. Sourcin Analysis. This stdy determines the best lcatin and gegraphy r spplier selectin r a
specic cmpany and a specic gd, incrprating dty analysis, ree trade prgrams and lgistics
reqirements.
2. Restricte Party Screenin . This prcess ensres that sppliers are nt “denied parties” accrding t the
u.S. gvernment and are therere eligible t legally receive bsiness rm a u.S.-based cmpany.
3. distriution an Fulfllment Stuy. Evalatin varis manactring r distribtin center strategies
via analysis inbnd ttal landed csts, variability, risks and wrking capital reqirements, and
tbnd cstmer service levels, csts and risks.
4. Supply Chain Financin. Examinatin byer-driven payables/receivables discnting sltins that
deliver benecial nancing arrangements t sppliers in rder t spprt their prdctin peratins.
5. Lane Cost Analysis. Step-by-step accnting r all the csts invlved t design, bild and deliver
gds t the end cstmer.
6. Compliance Plannin. Ensre that all reglatins are bserved, crrect dcments are generated
and cmpliant prcesses are in place. Classicatins and dty treatments shld be established and
evalated while rigin parts and materials shld be analyzed in rder t maximize vale ree trade
prgrams and minimize dty expsre.
t increased inventry and premim
reight charges, mre resrces and
travel expenses needed t manage the
spplier and increased verhead csts
t handle reverse lgistics.
Freign exchange csts rm a
mlticrrency bsiness envirnment
mst be addressed and calclated.
Managers shld test a given srcing
r lllment decisin nder dierent
crrency exchange scenaris, ranging
rm minr (10%) t majr (30%)
fctatins. Flctatins can als
have an adverse ripple eect in the
rm nexpected csts, sch as
increased dties, taxes and ees,
and internatinal reight. Even
cmpanies bying and selling in asingle crrency — uSD, r example —
shld cnsider the impact crrency
fctatins n their verseas sppliers.
Fr example, an apparel cmpany
bying garments rm Chinese sppliers
with a cntract denminated in uSD
shld nderstand the impact the
uSD’s depreciatin n that spplier’s
csts and cash fw. understanding
the key cst drivers beynd reign
exchange csts in the srcing decisin
is imprtant in rder t mnitr the
health the prgram. Fel prices,
labr csts and cmmdity csts can allfctate de t market cnditins and
trn nce-snd srcing decisins int
qestinable ventres.
Finally, incterms (standard trade
denitins mst cmmnly sed in
internatinal sales cntracts), payment
methds and payment terms are ten
nt crdinated. Financial managers
may aim r extended payment terms
in a drive t extend Days Payable
otstanding, while prcrement andsrcing teams are willing t negtiate
shrter terms in the qest r a lwer
cst gds. The tw parties may
actally be measred r cmpensated
r achieving diametrically ppsed
gals, leading t inecient instittinal
behavir and increased wrking
capital reqirements in the extended
spply chain, ten categrized nder
Days Inventry otstanding, Days
Sales otstanding and Days Payable
otstanding. Fewer inventry trns
generally mean an increase in the
verall cash-t-cash cycle, as well as anincrease in cst gds sld.
Cmpanies mst als take int accnt
the impact their selectin payment
instrments and payment terms n
their sppliers’ nancial pictre, and
cnsider emplying tls that help
mitigate the eect any changes
and inject liqidity int the verall
chain. Byers and nance managers
shld agree pn a practical and
nied payment strategy, aligned withcrprate nance gals, and ensre
that jb perrmance incentives spprt
that strategy.
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Prouction Phase:buyin to Inventory
The prdctin phase the spply
chain is when wrking capital needs are
determined and spply chain activities
initiated. Treasrers mst nderstand
the typical pitalls this part the
cycle — specically, nexpected
wrking capital demands and impact
spply chain variability and ailre.
As prdctin begins, arrangements
are made t acilitate the evental
mvement gds, and decisins
are made regarding ptential Free
Trade Agreement eligibility and
the applicatin relevant secrity
prgrams. unanticipated reglatry
reqirements and reqent changes
in imprt/exprt reglatins can
reslt in delays at prts, which in trn
may lead t time-cnsming cstms
inqiries, inspectins and seizres.other adverse cnseqences vary
rm the minr (brkers cnstantly
reqesting inrmatin t cmplete
entries) t the mre pnitive (ranging
rm excess dties, taxes and ees —
ten incrred by nt taking advantage
Free Trade Agreements — t ptential
nes and penalties). In a wrst-case
scenari, a rm’s spply chain actins
at the brder may trigger an adit by a
natinal reglatry agency. Sch risks
can be mitigated, hwever, thrghbetter planning, brker and imprt
entry management, accrate prdct
classicatin, specialized FTA prgram
management, dty minimizatin and
cstms cmpliance spprt.
bUSINESS PROCESS IMPROVEMENT STRATEgIES INCLUdE:
1. Accounts Payale Stratey. There is a wide range payables ptins with
varying degrees risk and cst: wires, checks, prepaid and debit cards,
cmmercial prchasing cards, letters credit and pen accnt prcessing.
Third-party vendr payment sltins knwn as “rder-t-pay” can prvide
cnnectivity, transparency and eciency.
2. Free Trae Proram Participation. Cmpanies can revamp srcing
arrangements t leverage ne the many reginal trade agreements thatredce taxes, qtas, dties and ees r certain gds t encrage trade.
Prgrams can be cmplex and paperwrk intensive, bt they still yield
sbstantial benets.
3. Classifcation Analysis. Ensre gds are prperly classied t speed
mvement thrgh cstms and determine eligibility r ree trade prgram
participatin. uprnt planning and dynamic adit and evalatin prcesses
are critical.
4. broer Manaement. Transrm brker relatinships int strategic
partnerships by selecting a ew key brkers, develping mtally benecial
relatinships and negtiating vlme-based discnts n ees. Prevent
nhealthy dependence n a single spplier by wrking thrgh a singleinterace, with mltiple partners sharing agreed-pn prcedres and
service standards.
Stage 2: Production Phase: The best srcing
arrangement is determined and sppliers cntracts’
are signed, payment terms are negtiated and
service levels established. The manactring
prcess begins, and plans are made t mve
the nished prdct.
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11
bUSINESS PROCESS IMPROVEMENT STRATEgIES INCLUdE:
1. Outsource Loistics Manaement. Streamline and integrate glbal imprt and exp
prcesses t ensre reglatry cmpliance and minimize spply chain delays.
2. Trae document Preparation. Centralize and atmate the preparatin and cllectin
dcmentatin needed t satisy predetermined nancing agreements. Ensre
data crrectness and cmpliance back t the prdct develpment and prchase rd
issance prcesses. Crdinate with cnterparties t make certain that a gd exp
translates t a gd imprt.
3. Trae Compliance Revie. Fll assessment glbal exprt r imprt peratins t
pinpint cmpliance ailres that stall delivery gds, ensre systematic cmplian
and redce risk.
4. Inventory Financin an Venor Manae Inventory. Financing ptins that minimiz
the time inventry sits n the balance sheet.
Stage 3: Distribution Phase:
Finished gds are mved t
warehses r end cstmers
sing the mst cst-ecient
methd t meet timing
and delivery reqirements.
Dcmentatin is created
in accrdance with glbal
reglatry reqirements
and distribted alng the
spply chain.
distriution Phase:Inventory to Settlement
The distribtin phase starts when
gds rll the prdctin line and
mst be transprted t anther actry,
a distribtin center, the stre shelves
r the end cstmer. Financial spply
chain activities take place in parallel
t physical spply chain activities.
Depending n the payment and
settlement tactics being emplyed, the
timing key events in the physical and
nancial spply chains may begin t
diverge.
A treasrer needs t nderstand that
accnting treatment r the gds
— r example, when they mve rm
inventry t accnts receivable —
can be a cmplicated prcess. Sme
cmpanies carry zer inventry andimmediately mve prdct t a third
party r end cstmer as it rlls the
prdctin line; thers pt t carry
inventry as an asset. Vendr managed
inventry (VMI), extended payment
terms and accelerated payments
rther cmplicate this pictre. Physical
spply chain ineciency leads t
excess inventry in the warehse and
n the balance sheet, which drains
wrking capital and slws inventry
trns, negatively impacting a variety
nancial metrics.
A cmpany’s nancial strategy is
typically nt a cs prcrement,
cmpliance and spply chain
pressinals, wh instead cncentrate
n mving gds qickly t the end
cstmer r keeping their shelves
stcked with plenty inventry. Fr
example, a rm’s trac department
may be csed n the lwest cst
transprt, while the distribtin nitis attending t the cntracted rder
ll rate. Meanwhile, the stre needs
t time their deliveries de t limited
space, and the cstmer simply wants
the prdct delivered r available at the
time it was prmised.
Cnsidered separately, these
departmental measrements are
sel indicatrs eciency; when
they are viewed tgether it is clear
that individal gals can cmpete,
decreasing verall eciency and driving
p the need r wrking capital. In
additin, rms balancing inventry
amng mltiple lcatins arnd the
wrld can rther cmplicate inventry
management and bild additinal
wrking capital ineciency int the
spply chain. Lack visibility t gds
in the spply chain makes it diclt
t detect these ineciencies. A review
will likely reveal increased inventry
t cver delivery variability r reqent
premim reight charges t cver pr
demand recasting and planning.
Hwever, these red fags are raised ater
the damage is dne.
T ncver sch “hidden” scenaris,
it is imprtant t measre and track
standard eciency metrics, sch
as Days Inventry, Days Salesotstanding and srpls stck in bth
markdwns and scrap.
Cmpanies mst als take int accnt
the impact their sales terms n their
cstmers’ nancial pictre, and n
the cstmers’ wn nancial spply
chain, and cnsider emplying tls t
help mitigate the eect any changes
and inject liqidity int the verall
chain. Fr example, a cmpany selling
high-tech prdct int Rssia thrghdistribtrs with payment and revene
recgnitin dependent n installatin
may need t extend sales terms rm
30 r 45 days t 90 days t allw r
increased imprt times and variability
transit within Rssia. I the same
30 r 45 day payment terms are sed
r Rssia, the distribtr will need t
secre nancing at higher interest rates
and will be able t take ewer large
rders at any given time.
Whether cased by sbptimal spply
chain planning, an npredictable
transprtatin pipeline r a lack
visibility, excess inventry drives p
spply chain csts.
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bUSINESS PROCESS IMPROVEMENT STRATEgIES INCLUdE:
1. Import/Export Assessment. Evalatin all imprt/exprt peratinal prcesses t mitigate risk
expsre via dcmentatin cmpliance with glbal reglatry reqirements. Pstentry adit prcess
r cstms entries r exprt lings t ensre cmpliance and ptimal dty treatment.
2. Freiht Payment an Auit. Exercise greater cntrl ver entire reight payment and inrmatin prcessby centralizing reight cntracts and service-level agreements in a database and aditing invices r
accracy, dplicatin and rate errrs.
3. Forein Exchane an Commoity Manaement. Banking services that acilitate crss-brder payments in
varis crrencies in rder t ptimize wrking capital and help trading parties t ensre predictability
cash fw, cntrl and csts, and enhance nancial stability r spply chain partners.
4. Structure Trae Finance. Financing strategy designed in partnership by bankers, ECAs (Exprt Credit
Agencies) and ther credit and capital markets prviders t spprt large, strategic prjects and
transactins.
5. Supply Chain Operational Revie. Evalatin spply chain nctinality, inclding ability the spply
chain t perate accrding t agreed-pn metrics. Analysis shld inclde identicatin bttlenecks
and perrmance spply chain partners.
Sellin Phase:Settlement to Sourcin
The settlement phase the spply
chain is the prcess by which payment
is received by varis parties incldingthe seller, the spplier, the nancing
entity and the like. The settlement
phase als incldes srting paperwrk,
managing dedctins and chargebacks,
and reslving disptes. Csts and
prts are ttaled, the prcess
assessed and bsiness prcess
imprvements identied. A review
the entire cycle and sbseqent
adjstments shld help remve
bttlenecks, highlight pprtnities
r eciency, minimize tre riskexpsres and eliminate nnecessary
wrking capital sage in the next cycle.
An ecient spply chain helps
deliver gds t the end byer
thrgh the right windw, allwing
the seller t maximize revene and
prt. An ineective spply chain
means diminished vale, increased
transprtatin csts and excess
inventry. Spply chain prcesses
shld inclde decisins abtwhen and hw t cllect and prcess
payments as well as eciently manage
disbrsements — all timed t bth
exprters’ and imprters’ needs.
Individal assessments and adits imprt/exprt management prcesses
as well as reight csts and reign
exchange pprtnities shld be
evalated as part the search r
peratinal imprvements.
Imprters and exprters benet alike
rm sae, ecient integratin with
their bank’s wrldwide transactin
capabilities. They can streamline
settlement prcesses by tsrcing
dcment checking, accnts payable
and reign exchange prcesses.
They can review and adit reight
bills, adit the cstms cmpliance
prcess, evalate carrier and partner
perrmance, and measre whether
r nt the spply chain is meeting
established perrmance standards.
Eective integratin can even help
players in the spply chain t gain
access t mre ecient nancing.
A grwing variety translatin tls
and indstry standard le rmats
(EDI ASC ANSI X.12, uN/EDIFACT,
SAP IDc and XML) acilitate direct
exchange electrnic inrmatin.
Stage 4: Selling Phase:
As the spply chain cycle
clses, nal dcmentatin
is sbmitted, nancial
settlement is made with
all parties and the entire
prcess is reviewed r
eciency and accracy.
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When evalating ptential partners, it
wld be benecial t seek a partner
that spprts cntries and crrencieswrldwide, as well as a cmplete
set data exchange ptins sch
as extended remittance text, split
remittance details and retrn le
acknwledgments.
Atmating crss-brder transactins
and prcesses helps rms gain
visibility int and manage the risks
invlved in cndcting crss-brder
bsiness. Cmbining a bank’s treasry
capabilities with a ll nderstanding
the internatinal fw payments
can als yield pprtnities t better
manage crrency fctatins, allwing
a byer t lck in avrable prices r
helping sellers t manage the crrency
expsre risk represented by lnger-
term prchase cntacts. By the same
tken, expsre t critical cmmdities
like el, cttn, sgar r cpper can
be managed and hedged. By applying
a cmprehensive reign exchange and
cmmdity strategy, rms can takeadvantage market pprtnities and
achieve ecnmies scale.
CnclsinTday’s treasrers and nancial pressinals mst nderstand precisely hw
nance integrates with ever-lengthening physical spply chains in rder t set
lng-term strategy, accrately recast nancial reqirements, manage risks and
ensre cmpliance with glbal reglatins. Witht sch a cmprehensive view
the prdct spply system, cmpanies will miss lw-cst srcing pprtnities
and prt maximizatin ptential and endanger cstmer relatinships. Managing
spply chain isses n a “reghting” basis rather than thrgh resight, planning
and rbst management prcesses intrdces npredictability, drives p csts and
expses the rganizatin and its cers t penalties, nes and headline risk.
Financial pressinals are in an ideal psitin t help ensre that an rganizatin’s
spply chain is prperly aligned t deliver nt jst gds, bt als deliver n the
rganizatin’s nancial gals. Hwever, t accmplish this, they mst develp a
clse wrking relatinship with all crprate areas materially invlved with the
spply chain. This wrking grp mst establish a ramewrk r nderstanding
rm a nancial perspective every aspect the prdct spply chain, rm the rststeps develpment and prdctin thrgh the nal stages distribtin and
settlement. Partners that marry nance and trade expertise with a ll range spp
chain erings can help treasrers and their spply chain clleages identiy tls,
tactics and best practices that prmte grwth while ensring a healthy balance
sheet and ptimal se wrking capital.
Tday’s glbal bsiness envirnment is rie with pitalls, bt active physical and
nancial spply chain cllabratin can prvide a healthy ramewrk t navigate
the landscape. A treasrer’s niqe perspective n the capital invested in spply
chains can be a signicant tl t help eect sch crprate change. Ater all, awell-managed and nancially integrated spply chain can be a cmpany’s secret
weapn — a cmpetitive advantage that can be ar mre diclt r rivals t
replicate than the prdct itsel.
A B o u T T H E A u T H o R S
Jonathan Heuser, gloal Supply Chain Hea, gloal Trae Services
Jnathan Heser is an Exective Directr within the Glbal Trade Services grp at J.P. Mrgan. He leads the bank’s
Glbal Spply Chain team, prviding trade management and wrking capital sltins t retail, apparel and cnsmer
gds cmpanies. other respnsibilities inclde spply chain cnslting, spply chain nance and the bank’s classicaltrade nance initiatives in Latin America. He is a reqent speaker n the tpic spply chain nance and was named
ne Supply and Demand Chain Executive magazine’s “Prs t Knw r 2008.”
Previsly, Jnathan spent ve years with Fritz Cmpanies, Inc., nw uPS Spply Chain Sltins, mst recently serving
in a client cnsltant rle. He hlds an MBA rm the F.W. olin Schl Management at Babsn Cllege where he was
an olin Fellw.
John brocell, gloal Supply Chain Consultin, gloal Trae Services
Jhn Brckwell has an extensive backgrnd in glbal trade bsiness and prcess evalatin, lgistics planning
and decisin spprt systems. As the Glbal Spply Chain Management Practice Leader, his cs is n nding
pprtnities r bsinesses t ptimize their internatinal trade by imprving csts, cycle times and qality and by
minimizing risks. A reqent speaker n the tpic spply chain ptimizatin and impacts t wrking capital, Jhn
was named ne Supply and Demand Chain Executive magazine’s “Prs t Knw r 2007.”
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© 2008 JPMrgan Chase & C. All Rights Reserved. JPMrgan Chase Bank, N.A. Member FDIC
Treasury Services at J.P. Moranjpmrgan.cm/ts
Fr inrmatin n Glbal Trade Services at J.P. Mrgan,
visit jpmrgan.cm/trade
A B o u T J . P . M o R G A N
The Glbal Trade Services grp at J.P. Mrgan is a
wrldwide leader in prviding sltins r glbal trade
management. The grp prvides lgistics and trade
nance sltins designed t help clients enhance
physical and nancial spply chain peratins, imprve
cmpliance with gvernment trade reglatins and
ptimize wrking capital. Lgistics sltins inclde
trade management cnslting, tsrced peratins
management, technlgy and trade edcatin and
cmpliance training.
Glbal Trade Services is part J.P. Mrgan’s Treasry
Services bsiness, a tp-ranked, ll-service prvider
innvative payment, cllectin, liqidity and investment
management, cmmercial card and inrmatin sltins.
With mre than 50,000 clients and a presence in 39
cntries, J.P. Mrgan’s Treasry Services is the wrld’s
largest prvider treasry management services.