Aberdeen recently released a report on Technology Platforms for Supply Chain Finance How to Drive Competitive Business Advantage by Increasing Payment and Financing Automation with Business Partners that found that best-in-class companies are six times more likely to have gained significant competitive advantage due to implementing Supply Chain Finance technology. They also processed twice as much volume, measured as annual dollar turnover, than their lower performing peers and three times as many invoices.
Supply Chain Finance (SCF) technology helps automate the process of exchanging payments, related documents, and information between buyers, sellers, financial institutions, and other involved parties. It supports related visibility and workflow for all the parties involved.
The most widespread technologies today that enable some aspects of SCF are document and content management systems (DMS/CMS), accounting systems that enable Accounts Payable (AP) / Accounts Receivable, (AR) Electronic Invoice Presentment & Payment Systems (EIPP) and Procure-to-Pay (P2P) systems, extended Enterprise Resource Planning (ERP), and global trade finance (GTF) platforms. Aberdeen has developed a 4-level pyramid of capabilities that represents the different levels of technology enablement a company can achieve. These are:
- DMS & EIPP
- Automated Management of Early Payment Discounts
- On-Demand Access to 3rd party supply chain financing
- End-to-End SCF decision support
The report presents the usual Aberdeen PACE (Pressures-Actions-Capabilities-Enablers) framework and the primary actions and enablers recommended by the report are worth noting.
- Automate AP & AR processes
- Automate purchase order management
- Automate charge-back management
- Adapt technology that facilitates access to trade financing
- SCF platform with access to payables financing
- SCF platform with access to receivables financing
- SCF platform with access to inventory financing
- Trade related document preparation & management
- Invoice matching / reconciliation
The study also notes that SCF platforms offer more than just financial benefits. Other benefits include:
- real-time visibility into program activity and status of each customer
- improved business agility
- greater usability and flexibility of the supply chain technology
- increased analytics capability
- improved productivity
The study concluded with some recommendations for action to help both struggling companies and leaders move to the next level of supply chain finance.
- Know what to focus on: identify the most critical financial metrics and focus on these specific metrics in SCF program development (example metrics are supplier performance, Return On Capital Employed (ROCE), Days Payable Outstanding (DPO), and Debt/Equity Ratios)
- Invest in a SCF technology platform that provides strong visibility and automates the key functions for you and your trading partners
- Use SC technology that provides visibility into shipments and inventory
- Improve financial risk management with new SCF platforms that offer enhanced analytics tools for credit scoring, supplier risk assessment, and working capital balance analysis with support for trade discounts and receivables/payables financing options
What does it all mean? When you combine this study with previous studies and blog posts here on Sourcing Innovation, you can deduce that:
- There are significant opportunities to improve supply chain performance through supply chain finance technology.
- Most companies are not capitalizing on these opportunities.
- As of yet there is no good definition for a Supply Chain Finance Technology Platform, and no providers that provide one that even covers all of the capabilities identified in the study. Its arguable whether or not any even come close on their own.
- In order to achieve best in class status, you will likely need to acquire and integrate a number of solutions, and possibly even extend these solutions with custom in-house development.
- Given that most of the best-in-class solutions in EIPP/P2P/eProcurement, Document Management, and analysis are from new, small, progressive companies, you will likely have to integrate the solutions on your own or use a third party integrator.
- You need a good game plan from the start – otherwise, you risk not only acquiring the wrong technology in your quest to become a Level 4 Best-In-Class company, but acquiring technology that does not fit together well. Even though every successful project is one that is approached in stages, it is key to identify not only the technologies you require from the outset, but the platforms you intend to use to insure that they will work together and that they can be integrated in an efficient and cost-effective manner. (Alternatively, adopt a common underlying technology model (XML/SOA/etc) and only select solutions that integrate with the model.)