Deutsche Bank: Managing Risk in the Supply Chain - Axel-Peter Ohse

Axel-Peter Ohse, head of Trade Finance Germany at Deutsche Bank, tells FDE how firms can adopt a more advanced approach to global sourcing.

The credit crunch has influenced companies to explore alternatives to sourcing liquidity, and also to reassess their suppliers, which can mean scrapping more opportunistic partners.

That’s the experience of Axel-Peter Ohse, head of Trade Finance Germany at Deutsche Bank, where he has been spearheading new initiatives in global sourcing. Ohse believes firms can be helped further by systematically linking trade information and data to corresponding finance through eplatforms for buyers and sellers. On these e-platforms the supplier executes an order and secures consent from the bank, provided there is acceptable invoice data.

Another alternative, he says, is transaction-related finance, which he describes as ‘equally important because it targets clients that do not like to be committed to one software platform. If you choose to go with a platform you can only do that with really good partners, and it needs to be a mediumterm partnership proposition.’

‘The transaction-based approach has been around in some markets for many years,’ he adds. ‘In the US it started with invoice discounting. It used to be, and still is, a fairly big financing wallet. Small and mid-cap companies haven’t been used to the overdraft financing we have in Europe which is on offer, but at very expensive rates. Overdraft in Europe is easy to handle but lacks the risk mitigating linkage to identifyable single transactions.’

Ohse points out that Asia has traditionally carried out transaction-based finance in the form of trade finance. ‘There are historical reasons for that. Many Asian banks have had tight levels of tier one capital in the past and have used the trade finance umbrella to allow them to create financing with fewer regulatory capital requirements.’

Ohse knows the region’s banking practices well, having spent 13 years covering multiple country management roles in several Asian countries – ten of those in South Korea and Japan – and he says his goal at Deutsche Bank is to blend the best of Asian with the best of US trade asset based finance, and bring it to Europe.

Subprime fallout

Looking to the future, he sees the regulatory environment in the wake of the subprime crisis playing an increasingly important role in how commercial banks structure their client offerings. One of the vital criteria is that corporates who take up supply chain finance provide the banks with transaction-related data.

‘That allows a slightly different modelling of risk, which in turn leads to a reduction in regulatory capital. I’m thinking of those banks that employ the advanced approach under Basel II, which is typically a European topic because most are gradually moving in this direction.’

As for the management of supply chain finance on electronic platforms, it is important, says Ohse, to ‘employ platforms that are collaborative and support third parties. It is designed to really bring down the manual work required; to load, connect and exchange data. These services are becoming increasingly important in Germany, where a number of previously sceptical corporates are gradually coming around to the benefits of outsourcing, and taking a second look at the handling and creating of documents, and how to minimise training costs and processing times.’

Ohse’s conclusion is that more corporates need ‘to realise the risks in the supply chain and start to proactively hedge these. The two most prominent risks are volatility in FX markets and commodity prices.’ He recalls crude oil’s biggest intraday jump, of 17% on 22 September and, before that, at the beginning of the month, the biggest intraday decline since 1991. ‘Quite simply, corporates are faced with those risks because their suppliers are,’ he says.

‘The last point I should stress is the need to effectively analyse and evaluate the risk within the supply chain to come up with the right risk mitigation strategies for FX, raw material prices and country risk. To that industry and supplier risk need to be added. This requires many divisions within a corporate to work more closely together. Purchasing and logistics must work with treasury hand in hand.’

In Ohse's view, there is substantial scope for improving internal communications to enhance supply chain management.