21 December 2014

Enrico Camerinelli

enrico camerinelli - Aite Group

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Financial Supply Chain

In the world of international trade, the process of exchanging payments, information and documents between buyers, sellers, banks, and other involved parties is becoming increasingly important for financial institutions. This community aims at presenting views and innovative ideas related to this financial supply chain space.

Ariba Network on SAP HANA: Strengthening the Weakest Link?

30 April 2014  |  3287 views  |  0

Yesterday, SAP announced that all transactions of its Ariba Network—a business-to-business community of hundreds of thousands trading partners—will be shifted to HANA, its new in-memory platform for real-time computing. This news represents a major accomplishment in the supply chain world because it moves the elaboration of supply chain big data from theory to practice, allowing companies, per the announcement, to "analyze the vast volumes of information they have on their businesses faster than ever before.”

Speed of elaboration and richness of data are important, but a supply chain is only as strong as its weakest link, and under today's global economic conditions and restrictions, weakness is mainly financial in origin—cash-distressed suppliers, distributors with restricted inventories, expensive access to finance, et al.  So a solution that tends only to the physical supply chain does very little to close the gap between the physical and the financial chains—very little, indeed, to strengthen the weakest link.

Extending physical supply chain data to the financial supply chain is key. As I wrote in another blog post, the way banks assess risk is mainly based on financial data and on a basic overview of operational performance. Thus, a company may be fully operational in its physical supply chain activities but at risk of being halted for a lack of financial resources. If banks had statistics on a company's performance throughout the end-to-end physical and financial supply chains, the risk profile would be more accurate and banks could better decide what portion of risk they want to take and how to accordingly price the finance they might choose to extend. After all, if a financial institution—or even an institutional investor—finds a company too risky to finance, HANA's fine light-speed capture and operational data elaboration risks being useless unless it can contribute to a reliable 360-degree profile, operational as well as financial.

How could SAP best use HANA to mend the SCF gap? By offering a combination of speedy analysis, rich data sets, and an algorithm that correlates operational execution with financial performance. To optimally leverage the speed of analysis and the wealth of data captured by the HANA platform would be to use that data to build a reliable company risk profile that connects physical and financial supply chains. The real value would reside in the creation of an algorithm—one accepted and valued by all stakeholders in the supply chain—that correlates a company's structured data (i.e., a company’s production, marketing, sales and pricing, HR, finance, facilities and operations) with transaction-level data from supplier, customer, and partner relationships to create that company’s risk profile. This would help create a more realistic outline of the company’s ability to run, grow, and transform its business.

SAP says that suppliers will be able "to access their complete transaction history with a given customer and create intuitive data visualizations that allow them to understand how their payment cycles are trending or whether their invoice rejection rates are improving.” But will the solution extend beyond physical supply chain logistics to supply chain finance? If not, will banks perceive faster speed to analyze information, even a vast volume of it, as a value? And will all this information be used to assess the credit risk profile of a company to allow it easier access to finance?

Banks that want to thrive in the lending and supply chain finance business must focus on the small and medium enterprise (SME) market. This calls for better profiling the risk of their future SME clients for which there are no credit risk tables. A platform capable to measure the value of a company’s supply chain represents a valid solution, and SAP HANA on the Ariba Network is well positioned.

 

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job title sr. analyst
location Boston
member since 2009
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Senior Analyst for Corporate Banking, based in Europe. Current research focuses on Global Transaction Banking, Supply Chain Finance and Working Capital Management.

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