Corporates Focus on Increasing Ownership and Liquidity, Minimising Risk

23/04/2012

The gtnews 2011 Financial Supply Chain Survey, sponsored by SEB, polled corporates about how they are managing the challenges in their financial supply chain (FSC). There were some eye-opening results, with a continued lack of real ownership of the FSC, as well as a high occurrence of breakage events that could be avoided. Risk management is still foremost on most corporate agendas, while forecasting and planning also present one of the main challenges. This article looks at the survey's results and puts them in context.

There has been increased advocacy of ownership of the financial supply chain (FSC) in recent years and it seems that some companies are listening: a dedicated FSC manager is needed for effective risk and liquidity management in the supply chain. In 2010, 25% of respondents to the gtnews 2011 FSC Survey1 said that FSC management was scattered across the organisation. By 2011, this figure was down to 16%, while the percentage of companies with a dedicated supply chain manager rose from 28% in 2010, to 31% in 2011. The survey results clearly indicate that 60% of companies are now placing the FSC under the control of treasury, the chief financial officer (CFO) or a dedicated supply chain manager, while 78% of them expect the FSC to come under their responsibility in future.

According to Patrik Zekkar, head of trade and supply chain finance for Sweden at SEB, this kind of holistic approach to FSC management is instrumental to reducing risks and avoiding disruptive supply chain events. “Of course, treasury needs to have a larger say in the supply chain process,” says Zekkar. “Treasury needs to take responsibility, so that, for example, no one in procurement signs off on a contract without treasury sign-off. This will help to get the whole organisation working towards the same goals and priorities, which can save the company a lot of working capital and bank credit lines. Overall, companies are increasingly working in this way, but now treasury has to pro-actively set the prerequisites for how the company’s cash flows should be structured, rather than simply executing scheduled transactions in the best possible manner.”

Although 16% still have responsibility for the FSC ‘scattered in the organisation’, just 10% expect to maintain this FSC structure in future. Overall, 32% of the survey’s respondents work in treasury, while 20% of them are financial managers, suggesting that treasury and finance are still often the most directly involved in managing the FSC. However, SEB’s Zekkar points out that simple ‘involvement’ is sometimes not enough. He adds: “Involvement doesn’t necessarily mean that you have an impact. Treasurers and financial managers need to be involved at the decision-making stages of working capital and risk management-related issues, otherwise they…