Measuring the Value of the Supply Chain by asafwewe


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									Measuring the Value
of the Supply Chain
linking Financial Performance and
Supply Chain Decisions

EnriCo CaMErinElli

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.

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