For many supply chain and logistics professionals, they hear the term financial supply chain and think, “That’s a finance thing – not my concern.” But what is the financial supply chain, and why should supply chain and logistics executives participate in this process?
I asked Kurt Cavano, Founder, Vice Chairman and Chief Strategy Officer at GT Nexus, those questions in a recent episode of Talking Logistics. Here’s what he said:
When you think of global trade, there are really only two questions that matter — Where is my stuff? and Where is my money? As professionals in the industry, we tend to think that Finance guys worry about the money and Logistics guys worry about where the stuff is. That is the old way of viewing the supply chain. What people are beginning to realize is that by putting the financial supply chain together with the physical supply chain, you really can rethink a lot of processes.
Viewing the head of Finance or the Treasurer as your partner in the supply chain is really the new way to think about your supply chain. So don’t just think about where the stuff is, think about how to tie the physical movement of goods together with the payment process. That’s a different and new way think about the supply chain.
A lot of companies, however, still manage their physical and financial supply chains in silos. So I asked Kurt: When you look at companies that are taking a more holistic and integrated approach, how did they get there? What are they doing differently today and what benefits are they experiencing?
Let me give you a customer example: Columbia Sportswear. If you think about the different roles within the organization, the Treasurer wants to pay suppliers as late as possible, whereas the head of Merchandising and head of Logistics want to pay suppliers as quickly as possible because they want to make sure that suppliers have access to capital, that they’re safe, that they’re going to be reliable. So you have these conflicting goals.
What companies like Columbia realized is that if they tied the physical and financial supply chain together, they can really rethink things. For example, when their suppliers in China want to borrow money, they have to pay 6, 8, maybe even 10 percent to get money to facilitate and pay for their supply chain. Meanwhile, Columbia has cash on its balance sheet, which it keeps in the bank earning ½ percent if it’s lucky. So you have the Treasurer who has cash earning ½ percent and suppliers that are paying 8-10 percent for capital — that just doesn’t make sense.
What Columbia realized is that if it tied those things together and put an early payment program in place, it could use its cash that was only earning ½ percent and lend it to its suppliers at 4 to 5 percent. As a result, their suppliers would have access to cheaper cash than they would otherwise, and the Treasurer would earn more money than he would otherwise, and that ultimately saves the supply chain money.
That is just one example of holistic thinking, and it required the Treasurer, CFO, and head of Supply Chain to work together to make it happen.
Kurt also talked about how to get buy-in from all the internal and external stakeholders to move away from “the way we’ve always done things” to a new, more integrated approach; he also discussed the role of technology in enabling an integrated physical-financial supply chain process and the capabilities companies should look for in a solution. So, I encourage you to watch the rest of the episode for those insights and more.
I’ll wrap up with Kurt’s list of “5 Things Every Logistics Executive Should Know About the Financial Side of the Supply Chain,” which he outlines in this short clip:
How well is your supply chain organization working with your CFO and Treasurer? Are you linking your physical and financial supply chains? Post a comment and share your perspective!
