Treasury Today Country Profiles in association with Citi

Building intelligent financial supply chains

Cybernetic brain on electronic chip board

Integrating the physical, financial and data flows in supply chains is essential says financial supply chain tech vendor, Taulia. Its recent user-group conference aimed to prove this point.

Digitisation is rapidly transforming the business landscape. Since the turn of the century, just over half of the Fortune 500 have disappeared. They either went out of business or were acquired, primarily because their 20th-century business models were made redundant in the 21st century by the rise of digital.

It’s a moot point, but one thing that certainly seems redundant, even in many 21st century businesses, is the archaic way that financial supply chains are managed. Often these are highly inefficient, relying on paper-based communication and manual processing. As a result, a significant amount of cash – up to US$19trn – is locked in unpaid invoices around the world at any point in time.

It does not have to be this way. New technology, the democratisation of capital and ‘digital friendly’ regulation means that new and improved procure-to-pay processes can be implemented. These provide a host of benefits to both buyers and suppliers.

For small suppliers increasingly pressured by cash flow concerns, unlocking liquidity is vital. For buyers, digitising their financial supply chain can improve working capital metrics and overall supply chain efficiency.

Corporate stories

British pharma giant, AstraZeneca, is currently on the journey to supply chain efficiency. Its Senior Finance Director, Global Procurement, Robin Owen, talked about the drivers behind the programme.

At present, AstraZeneca spends over US$10bn with its 50,000 suppliers annually. Although a lot of this spend is with a small group of strategic partners, the company is committed to being a ‘good corporate citizen’ and wants to ensure that it can support its entire supply chain. At the same time, cash has become a priority for the business in order to fund its R&D pipeline and manufacturing.

For AstraZeneca then, the drivers behind its SCF programme are multifaceted. Owen explained that it wants to support its supply chain with financing, drive more efficiency, visibility and certainty in the financial supply chain. As a result, he expects to generate cash through payables by negotiating extended payment terms with suppliers where applicable.

With these objectives in place, Owen and his team have set about completing a highly detailed spend analysis. This went beyond a simple examination of opportunity – if you move 80% of your spend to 90 days, you’ll generate $xm. Instead, Owen and his team segmented AstraZeneca’s suppliers into different sectors. It then leant on SCF providers to understand the credit ratings applied to different suppliers, noting what issues it could alleviate for them by providing a source of low-cost funding. “Informed knowledge about the spending base can allow you to pinpoint what you are trying to achieve and the value of the programme,” says Owen.

This detailed spend analysis also enabled AstraZeneca to understand where this programme was most needed, allowing a targeted rollout. It also provided an opportunity to rationalise instances of partner/supplier relationships, providing a more consolidated view.

Finally, Owen highlighted the importance of cross-functional work when looking to generate cash through SCF. He said that companies need to fully understand who is running the project during the implementation and then who will maintain the ongoing management of it. “Most importantly though you need buy-in from all the functions SCF touches, including treasury, finance, procurement and IT.”

AstraZeneca sees its project as much more than just a pure SCF programme. They are using it to implement a different way of working, making it easier for its suppliers to do business and simplifying the processes in the financial supply chain.

Has Taulia proved its point about integration of physical, financial and data flows in supply chains? AstraZeneca and its suppliers seem to think so.

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