Measuring the Value of the Supply Chain linking Financial Performance and Supply Chain Decisions EnriCo CaMErinElli Preface The latest new economic scenarios for buyers and suppliers, the introduction of the Euro, the need for competition based on quality of products and company organization and the request for new services and solutions to face the new challenges of the world-wide market, has made financial institutions reconsider and remodel their approach to customers. The complexity of customers’ needs is constantly growing. This is due to technical and legal innovation, automation of administrative and financial activities, the development of networks and document dematerialization as well as reorganization of processes and relations with counterparts, all of which generate real transformations. Nowadays sourcing managers are committed to making production workflows as smooth as possible and reducing the verticalization of production. Since supply sources are more and more global, the producers perform less and less the full production cycle in-house, choosing to exploit the advantages of outsourcing instead. As a consequence up to 75 per cent of production costs, which corresponds to 55 per cent of turnover, is generated by suppliers. What is the impact of this trend on financial flows? How can the need of suppliers to have more rapid payments and that of buyers to extend deferred payments be combined? The production chain, based on a global and diversified supply line, allows a higher elasticity of production costs in the meantime and reduces the control on financial costs charged by suppliers. In fact, they often have to bear the weight generated by both financing their working capital during production and the liquidity gap between shipment and payment. If we consider that supplier credit is one of the main financial sources but also the most expensive, the need to improve this area of business becomes evident and the bank can be a valid partner. The buyer makes a lot of effort to decrease costs in the internal production phase. Unfortunately, the financial supply chain has not changed much in the last 40 years: further added value can therefore be bought by accurate financial management, offering appropriate solutions, increasing payment flows and providing new services to reduce operative costs. xvi MEaSuring thE ValuE oF thE SuPPly Chain Along the production and supply chain different events can harm cash flows and delay payments. While the standard financing tools, typical of the banking business, are well known, the same cannot be said for the services that banks offer to companies in the different phases of the supply chain: shipping insurance, commercial information on trade partners, Purchase Order Presentment and Payment, Purchase Order Matching, Electronic Invoices Presentment and Electronic Invoices Archiving, along with tools that help suppliers to optimize their internal process flows such as letters of credit. UniCredit Group, for example, has invested human and financial resources to develop this area of business, leveraging on its IT and technology skills to serve the new needs of corporate customers. Through Global Transaction Banking, the product factory for international transaction banking, UniCredit Group serves its clients’ businesses across 22 countries in continental Europe – the core of an international network that spans more than 50 countries – with distinguished products, services and cutting-edge solutions in the areas of cash management and e-banking, structured trade and export finance, international and correspondent banking and trade finance. As a result, UniCredit is able to meet its corporate clients’ transaction banking needs with a deeply rooted market presence and the capability to understand local needs and match them with best of breed technological solutions. A financial institution’s aim, when approaching companies as a Supply Chain Management partner, is to have a new mind-set, paying attention to different needs, trying to understand the dynamics of the productive world and aiming at becoming a long term business consulting partner, sharing knowledge, language and goals with its customers. Modern banks are in fact fully part of the supply chain and share with their customers the same interest in smoothness and soundness of the entire process and in the financial strength of all parties in order to guarantee business sustainability in time. The main goal for financial institutions, in this new world of ever changing dynamics, is to optimize their customers’ working capital, liaising not only with Treasury or Finance Departments but also with the Sourcing Department, providing the latter with additional negotiation tools for both internal and external customers. As an international bank, we at UniCredit have therefore enthusiastically and thankfully welcomed this opportunity to give our view on this subject. The aim is that this area of mutual interest, well developed in this book, leads to further innovation of business models and financial products and services. Marco Bolgiani Head of Global Transaction Banking Division, UniCredit Group.