Supply Chain Finance Management MBA Project

As the financial and physical supply chain become more integrated, debate is also switching to the management of inventory. Retailers, especially, want to delay taking title to the goods until the point of sale. For the banks however, financing and risk are traditionally directly linked to who has the title of the goods. How the banks react to this challenge remains to be seen. Basel II and credit concerns will dominate the discussion. One potential solution may be through the closer links that many banks are already forging with logistics providers and consolidators.

Only one thing is certain; any bank wishing to remain active in supply chain will need to remain innovative and ready to invest in the quick changing world of trade.

Banks that working with counterparts in emerging markets can provide earlier working capital finance. This can be achieved by developing or expanding partnerships with regional banks that already have a presence in these local markets. For example, RBS has such a relationship with the Bank of China (BoC). They have 13,000 branches situated throughout China, some 38% of the Chinese Corporate market,

Known challenges still remain and new challenges will of course continue to emerge as banks work with their customers to extend financing solutions through the supply chain. Whether banks provide end-to-end finance solutions across a supply chain or work with strong regional banking partners, the need to match and reconcile data in the supply chain is vital. A practical example of this is the matching of the final supplier invoice to the purchase order and/or other documents (e.g. shipping) that have been raised as the transaction progresses. This brings the discussion back to how such data is best managed.

For the banks, the challenge is how to assist customers in this space? There is a growing consensus within the banking sector that the push by the more sophisticated corporate to integrate the physical and financial supply chains to achieve greater efficiencies and therefore lower costs will provide ample opportunity for the banks to add value through the provision of extended services and financing propositions.

The key point, therefore, is to define what the role of the bank is. Some propositions are more obvious than others. Banks should consider how they can unlock working capital value in the supply chain earlier in the transaction by using the data that is presently produced through the process. However, gathering and linking such data emanating from the physical and financial supply chains is not so easy. The flow of information between the corporate, its trading counter parties and the bank can be hampered by disparate systems, processes and a lack of standardization.

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