Insight & Analysis

In focus: supply chain centres

Published: Jan 2017

Managing supply chain activities effectively is an essential component of a business’ success. Companies which do not perform well in this area can be at a considerable disadvantage when it comes to reducing costs, minimising risk and ensuring the quality of goods.

In order to manage supply chain activities effectively, companies are adopting different approaches tailored to their industry profile, customer needs and size, says Hari Janakiraman, Head of Core Trade at ANZ. “There’s no longer a one-sized approach to supply chain management, as product positioning and distribution is becoming more decentralised into multiple local or regional centres,” he says. “Adoption of this model enables global synergies, while also remaining sensitive to local requirements.”

While the concept of supply chain centres or hubs is nothing new, the way in which companies approach this area is evolving – as are the geographical locations being chosen for centres. Supply chain centres tend to be closely associated with global manufacturing locations.

“Typically many of these manufacturing locations are in Asia – especially in countries such as China, Vietnam, India, Thailand, Malaysia and Indonesia,” says Venkatesh Somanathan, Global Head, Supplier Finance Solutions at Deutsche Bank. “We are also seeing a lot of new manufacturing companies coming up in Eastern Europe, while agreements like North American Free Trade Agreement (NAFTA) have created significant manufacturing bases in Mexico. The architecture and the formulation of global supply chain centres have basically been to map this location out.”

Combining treasury and procurement

Companies have long been developing techniques and structures to centralise their procurement processes in order to operate more efficiently. Likewise, many companies have taken steps to centralise some of their treasury activities. While these activities have tended to be managed separately, some companies have now developed structures which can be used to centralise both the treasury function and the procurement and sales function.

Michael Vrontamitis, Global Head of Trade, Product Management at Standard Chartered, says that global supply chain centres can combine both the treasury function and the procurement and sales function. “We are increasingly seeing that companies have centralised procurement, they have centralised sales – and they are now moving into these centres which manage not just the treasury piece of it, but also the logistics of the whole supply chain.”

Aziz Parvez, Head of Asia Pacific Trade and Supply Chain Finance at Bank of America Merrill Lynch adds, “In some cases, we have seen supply chain hubs develop very closely with the treasury. While treasury may not be involved in the logistics side, treasury is very closely involved in working capital.”

Parvez says that cost savings are a key goal when setting up a supply chain hub. The more decentralised the setup is, the higher the cost in terms of both infrastructure and people, so bringing it all together in one location means saving on the cost. This model also increases efficiency: if people are more aligned, there is a more standardised approach in terms of both procurement and financing.

However, while more companies are reportedly bringing treasury and procurement together in supply chain hubs, in practice this can mean different things to different companies. Vrontamitis says that such centres can operate using different models where treasury is concerned. “One is a fully integrated model, where the global supply chain centre runs the treasury as well. Then you see centres which see treasury as a functional service alongside.”

Future developments

Looking forward, Janakiraman says that new challenges and opportunities may continue to emerge for companies designing their supply chains. He notes that the ability to adopt and leverage new technologies such as RFID, GPS and sensors may lead to improvements in areas such as supply chain visibility, analytics and process optimisation. Meanwhile, increasing the harmonisation of definitions related to supply chain finance will enable companies to optimise their working capital positions.

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