Niclas Osmund

Financial supply chain is surely one of the hottest topics in the industry at the moment. But, what’s the big fuzz? Haven’t the financial supply chain existed since beginning of time? Of course it has. And, apart from reversing the old fashioned factoring set-up into Supply Chain Financing, what’s new?

Well, to begin with, I have to question my own definition of Supply Chain Financing. Although, for those initiated, it’s become the same thing as supplier financing the term itself suggests a financing scheme for the entire supply chain. And, a financial supply chain is so much more than just supplier payables and customer receivables.

This is not really new but with the ongoing long-term trend of globalised trade, supply chains are growing in complexity. Being a successful international company means that you continuously add customers, suppliers and other counterparties to your supply chain. These counterparties will probably also, increasingly, reside in emerging markets. Consequently, you’re adding complexity and risks exponentially with every new customer, supplier, production unit, logistics partner and geography you engage with.

What’s new is the awareness of working capital and risks (thanks to the financial crisis…) and the attention at corporate top management level. Access to liquidity and mitigation of risks that wasn’t previously regarded as risks all of a sudden became top priority.

Emerging markets, by the way, is a moving target as those of yesterday is now well established trade partners and others are becoming the emerging ones. Let’s face it, economic growth in the world is to a diminishing extent taking place in Europe or North Americas.

There is a substantial probability that you, as a corporate, will end up in a situation where you are financing both your suppliers and your customers through your own balance sheet. You then end up with a larger amount of tied up working capital that could be more efficiently used elsewhere. You are also likely to be sitting with liquidity in countries from where it’s very difficult to get your hands on it – often referred to as trapped cash.

Risks, they come in a variety of flavors: liquidity, currency, interest rate, operational, counterparty (and they are plenty looking at the whole supply chain), political, commodity, etc, etc.

So, how do you finance your entire supply chain in the most efficient way? Well, firstly you need to apply a truly holistic view, end-to-end, on your financial processes and have an idea of how they will change in the future. The main insight here is that your financial supply chain will always follow its physical twin. It’s the physical supply chain (the core business) that is the root cause to all of the different risks and that ties up your working capital. It’s the task of the financial supply chain to follow smoothly and to offer the toolbox of mitigating actions.

The treasury department has a key role to play here to champion interdepartmental communication and engage in an early stage in strategic discussions and business planning. Also, the treasury has the ability to seek out the appropriate partners in order to find the right mix of instruments and solutions for implementing an efficient financial supply chain strategy.

This is a challenge for banks! This is an opportunity for banks! They need to step up to the plate to really understand the nature of their customers businesses. And, they need to offer comprehensive solutions in order to assess the whole financial supply chain of their corporate customers - with all its complexity, risks and areas for improvement. And furthermore, banks need to understand where, when and how they fit into the puzzle. Banks that are able to do this will be the winners in the corporate banking arena. Why? Because they will help and advise their corporate customers to implement best practices and thus to become winners!

Please, share YOUR opinion here on the Benche. Let’s have a discussion!

Niclas

Sibos was officially opened by the Tieto Sunday party yesterday evening. Some 150 people attended the party held on a boat in one of the Amsterdam canals. Now I'm in the huge conference center RAI. This is my first Sibos conference and this is really something different from the Eurofinance's I've been to over the years. Just the size of it - some 8000 delegates! It immediately becomes very clear that this is about networking. There is a really comprehensive programme with lots of interesting presentations, panels and discussions. But, networking is the key thing here. I have never had so many meetings booked in one day before. And the number of cocktail receptions and night clubs invitations I've received... You would have to clone yourself to be able to attend half of it. This is going to be fun! Cheers, Niclas.

On November 30, 2009, me and my family set out for Hanoi. The only thing we knew was that we were going back to Stockholm from Bangkok on January 14, 2010. Travelling days uncounted, 44 days ahead of us in South East Asia. A couple of days before we left Stockholm I had booked a hotel room in Hanoi Old Quarters for 4 nights, that was it. With Lonely Planet in the backpack, adventure was just waiting for us.

The short version: Vietnam - Hanoi, Halong Bay, Da Nang, Hoi An, Saigon, Mekong Delta, Phu Quoc, Saigon, Cambodia - Siem Reap, Phnom Phen, Thailand - Krabi, Koh Jum, Koh Lanta, Koo Muuk, Bangkok and home again. We made our way by international and domestic flights, night train, bicycles, rock climbing, elephants, bus and boat.

The highlights? Halong Bay, Mekong, Phu Quoc and Siem Reap. From Siem Reap you access a vast temple area built by the Khmer Godkings... with Angkor Wat as the crown jewel, just amazing.

Travelling this way - with backpacks, no fixed plans, taking it day by day - is a wonderful way of experiencing a country, its inhabitants, infra strucure, culture, sights, food... Maybe it's not for everybody but it's certainly is for me and my family. We will do a similar but shorter (both in time and distance) trip this summer to Greece. A round trip booked Stockholm-Athens and in between a number of islands in the Cyclades.

Now, I have to tell you a story about Hanoi that can come in handy if you intend to go there. Cruising the Old Quarters of Hanoi, there is some rules you need to know about. A special feature of this area is that the sidewalks can't be walked on - they are occupied by food stalls, shops and people eating (Hanoi people eat all the time) meaning that you have to walk in the street. Another feature is that Hanoi has 6,5 million inhabitants and 4 million motor bikes and almost no traffic lights. So, when you cross a street you simply can't wait for the right moment. If you do, you might be standing there for a week or so. The rule is therefore to just start walking at a steady pace crossing the street - the motor bikes will pass in front of and behind you. It's a bit like Moses and the Red Sea. If you hesitate, stop or accelerate you are doomed. The motor bikers estimate your speed and direction and just drive around you. Especially challenging with kids, I can tell you.

I stop here, or it will be to long to read. I might get back to the topic again or tell you about Greece.

All the best to you and your travel plans!
Niclas