Source: Arthur Voncheck, Bolero
Despite an increased focus on international security and global trade management (GTM), the financial supply chain still remains a major bottleneck for organisations trying to optimise their extended global supply chains says Arthur Voncheck, CEO, Bolero.
With more and more businesses operating globally, there’s an increased awareness of the added demands that international trading can place on an organisation. To accommodate this global expansion, many organisations have evolved their supply chains – not just as advanced logistics tools but increasingly as the strategic heart of their business. Thanks to Internet-based connectivity and reporting, these businesses now benefit from dramatically-improved visibility of supply chain events and pressures, and there’s a realistic perception that a tightly-managed supply chain can accommodate most local disruptions and should be able to keep their business moving effectively.
At the same time, we’ve seen dramatic advances in globalisation. The last ten years particularly have seen production in Asia – especially China – become a regular component of many global supply chains, while the opening up of new consumer markets in both Eastern Europe and Asia, increased trade with former Soviet Union states and accelerated trade liberalisation have all added complexity and fragility to global supply chain operations.
Post 9/11 and the recent Asian tsunami, we’re all far more aware of how terrorist activities and natural catastrophes have the potential to disrupt our extended supply chains – often far beyond their local and immediate surroundings. Mindful of this, organisations are becoming increasingly adept at building in the necessary flexibility in terms of local supply chain management and disaster planning.
All this increased planning and visibility has placed an increased focus on any areas that either disrupt or have the potential to interfere with the smooth operation of an effective global supply chain.
Increased visibility of global trade
Over the last few years we’ve also seen the growing importance of global trade management (GTM) solutions, and Aberdeen Group, for example, estimates that this year some 40% of major enterprises will be using GTM software solutions to help them gain full visibility and control of their entire international transactions – from the initial point of purchase/sales order creation right through to the delivery of tendered goods and financial settlement. Companies surveyed by Aberdeen reported that in order to effectively architect and manage their global supply chain, it was important for global trade intelligence and clearly defined cross-border business processes to be in place.
This has become more important and more complex since 9/11, with companies now facing increased pressure for vigilant compliance – particularly with new US Federal security regulations. New customs regulations are particularly driving organisations to consider a global trade management strategy. Key benefits here would include reduced administrative costs, avoiding costly fines and penalties, being able to demonstrate due diligence and also complying with US initiatives such as the Customs-Trade Partnership Against Terrorism (C-TPAT), 24 Hour Rule, Container Security Initiative (CSI) and Fast and Secure Trade (FAST).
The increased complexity of Homeland Security and GTM initiatives are clearly placing an increased pressure on supply chain planners. What’s interesting, however, is that all this renewed focus on global trade and cross-border business processes has drawn attention to another potential bottleneck area – the actual financial supply chain that parallels physical supply chain activity.
Addressing the financial supply chain challenge
Those organisations that have already invested millions of dollars in optimising the performance of their physical supply chains have effectively uncovered a whole new infrastructure – the financial supply chain – which without optimisation – has the potential to significantly impact overall corporate performance. Specifically, we’re referring to the end-to-end trade processes and information that actually drive an organisation’s cash, accounts and working capital. Indeed, very few advances have been made since international trade tools and processes were first laid down over 500 years ago!
What organisations are now finding is that it’s taking them too much time to create, transfer and process paper documentation, and that there are significant costs and errors associated with the manual creation and reconciliation of documentation. Often businesses have implemented a range of different, fragmented point solutions that don’t begin to address the complete end-to-end processes of the trade cycle. As a result there are regular disputes between importers, exporters and their banks that arise because of inaccurate or missing data, and there are real bottom-line business implications that result from the lack of transparency in inventory and cash positions when goods are in the supply chain. One analyst has estimated that a typical billion dollar company spends approximately $27 million annually funding unnecessary working capital that is used because of a lack of overall financial supply chain visibility.
Not surprisingly, there have been many initiatives aimed at addressing this challenge, but achieving financial supply chain benefits has proved difficult because of the very complexities associated with international trade. To date we’ve seen that specialist point solutions have provided limited value because of their inability to scale across the whole end-to-end trade cycle, while e-commerce initiatives have generally failed to provide the platform needed to manage the complexity of global trade.
At Bolero, we operate as a neutral, trusted third party focused on the development of a comprehensive set of standards that would remove the barriers to global, cross-enterprise business. We concentrate on implementing and enforcing these standards in an open platform to enable paperless trading between buyers, sellers, logistics partners, banks, agencies and regulatory authorities anywhere in the world.
From our work in helping organisations to optimise their financial supply chain performance, it’s clear that aiming to automate the whole end-to-end trade cycle - with all its different trade and banking partners – is never going to happen in a single ‘big bang’ episode. Instead we’d encourage organisations to look to automate those processes or parts of a process that cause them most pain.
For example Swiss-based Glencore, one of the world’s largest suppliers of commodities and raw materials, is using Bolero technology for the online automation of its Letter of Credit application process. Deploying our BoleroAdvise and BoleroApply solutions, Glencore is saving time and cutting costs by improving the speed, efficiency and accuracy of its Letters of Credit process. According to Glencore, this is helping to speed the company’s time to order fulfilment and is opening up the potential for accelerated cash flow. Perhaps more significantly, working with Bolero also provides a consolidated view of all its outstanding Letters of Credit, helping the company to optimise its cash flow and maximise credit life opportunities with its different banks.
Glencore is just one example of how the practical application of standards-based solutions can incrementally lead to an automation of trade finance processes and the broader financial supply chain. We believe that by delivering applications such as these, organisations can begin to successfully merge their physical and financial supply chains – fundamentally re-engineering the way that business is done.