Forget the banks. Software and tech can keep money moving around your supply chain and improve your working capital.
Imagine a world without banks. Or, in today’s credit crunch, a world where cash arrives quickly wherever it’s needed in the manufacturing supply chain, without bank charges.
Sounds far-fetched, but that’s what some radical thinkers in the technology and services industries are trying to whip up. It’s part of an IT-based trend called supply chain finance aimed at the seemingly impossible double act of speeding up payments and allowing manufacturers to hold onto their cash longer as goods move around the world from raw materials through production, transportation, and end-user sales.
“We call it faster cash,” says Nigel Woodward, Intel’s worldwide financial services director, based in Swindon, England. “A look at today's passage of goods from supplier to buyer in exchange for payment -‑ via the banking infrastructure -- is literally riddled with inefficiency and unnecessary cost.” As the world’s largest chip producer, Intel wants to sell the processing power that would enable this virtual, possibly bank-free money machine.
“If the banks don’t wake up and start paying attention to what the client needs, the risk is someone else will get in the game,” says Enrico Camerinelli, a Milan-based senior analyst with research and advisory group Celent. He likens supply chain finance’s future to the emergence of PayPal on the consumer Internet, where PayPal has taken over many aspects of the payment processing role while relegating banks to the very last step of simply sending money.
That “someone else” stepping in for banks could be a big company with a financing arm and close links to IT and logistics, such as IBM or UPS, Camerinelli says. Or it could be a transaction processing firm or business-to-business facilitator, such as GT Nexus or GXS.
Ashley Dowson, director of the SEPA Consultancy in London, says it could also be a company like Travelex, known for providing currency exchange but outfitted with technology it could use to manage electronic invoicing. And Sarah Jones, CEO of London-based SCF Capital, a technology and consulting firm, says that big companies at the end of the supply chain, like a BAE, might be willing to provide faster, but discounted payments to global suppliers.
Another possibility: A nascent European payment system called TWIST could begin to replace the SWIFT payment co-operative owned by banks and often criticized for inefficiencies and proprietary systems that favor banks.
What these alternative ideas have in common is the notion that banks are not well-tuned into information about goods as they move around the supply chain. Likewise, traditional banking methods for financing the supply chain, such as letters of credit, are relatively inefficient and costly. On top of that, many banks have famously run into their own financial hardship, making them unwilling or unable to front money to suppliers on affordable terms.
The alternative is to make better use of technology to move messages about the state of goods in production or transit, and to electronically transmit invoices in a standard system that automatically triggers payments rather than requiring human intervention.
For instance, using RFID chips and sensors, a container carrying waxed jackets and sitting on a ship in Singapore could transmit information via a WiMax network to the Internet. A retailer in London that has ordered the goods would receive information assuring it that the jackets aren’t melting. On the basis of that confidence, the retailer might forward payment to the jacket maker once it receives an electronic invoice from the jacket maker. No bank, but lots of technology.
