Fortis: Tighten the Financial Supply Chain - Peter van Ginneken

Peter van Ginneken of Fortis outlines why companies should streamline their supply chains and the financial rewards of doing so.

As businesses become more complex, with many companies sourcing raw materials and selling products around the globe, more CFOs are looking at the efficiency of the financial supply chain as a source of competitive advantage.

‘Interest in this area is not new, but technology costs were a barrier,’ says Peter van Ginneken, supply chain and cash management director at Fortis, the international banking and insurance business.

‘Now new technology is cheaper, supply chains, especially financial supply chains and working capital issues, are back on the agenda.’

Improving supply chain efficiency is largely down to costs and control where cash and credit are limited in the current market circumstances. This means squeezing costs out of the chain and obtaining increased control and greater insight into the financial supply chain through better use of data and more effective communication.

‘With financial supply chains we need to ask the question: “Where is the cash in the supply chain at any particular time and is it available when I want it?”’ says van Ginneken. ‘If you can answer that question then you are going to be close to having the optimum supply chain.’

Although businesses face a number of interrelated challenges in achieving an efficient financial supply chain, many of those challenges depend on good working capital management. Take cash conversion, for example.

‘You want to move out costs in the supply chain and link the working capital of every entity within the chain,’ says van Ginneken.

Modern technology and new financial supply chain management concepts allow companies to reduce working capital requirements. They also eliminate cash being tied up in the wrong entities and in working capital. For example, they can avoid having stock sitting in warehouses across the world when it is not needed.

‘If a business says it has a lot of stock in Asia at any one moment in time, because that’s where customer demand is, we would go through the whole business cycle and see if they really needed that stock in Asia, or whether someone else could provide it for them and take over that responsibility. Or, whether they could lease or outsource that part of the business and return the cash to the basic business cycle.’

While every supply chain is different, from his experience working in the field van Ginneken recognises some common issues.

‘One problem is a lack of communication within companies. The finance, sales and purchasing directors each have their own strategy and targets. This is a classic mistake many companies make,’ he says.

‘What is actually required is an overall supply strategy and stronger relationships across the chain, with everyone involved looking in the same direction.’

That is why, for example, information and data sharing is critical, to achieve the required alignment among the entities and people involved.

‘But it is a tough challenge,’ says van Ginneken. ‘How do you secure the data across the whole supply chain? How do you know everybody is looking at the same part of the overall data structure? You need to be able to deal with these questions.’

Sharing information and better communication is an important part of the solution too. ‘We get the people involved in managing the various parts of the financial supply chain round the table to talk through the whole chain to get to a solution,’ he says.

That solution may well include a package of supply chain-related services. As an addition to its supply chain expertise Fortis has a trade, treasury, factoring and leasing group, as well as suppliers on the information and data gathering and sharing side. Unless companies can review and tighten their financial supply chains independently, Fortis' services and expertise will be in great demand for the foreseeable future.

‘In 99% of companies, they are still not looking at the overall supply chain picture, but just at the short-term view of how to get as much profit as possible. In order to remain competitive in the global economy, that way of acting will need to change.’