| In today’s global markets, everyday business | | | | duplicated information as the information being |
| activities can involve thousands of processes and | | | | created is a single source of truth. As a result, |
| individuals. When these activities are efficiently | | | | suppliers benefit as their costs are reduced and there |
| managed and coordinated across the enterprise, | | | | is less need for reconciliation. Further to this the risk |
| powerful synergy results. | | | | of error is reduced, disputes are minimised and |
| In reality, many organisations struggle to make sense | | | | invoices are settled faster. As a result, companies are |
| of silos of information drawn manually from a myriad | | | | able to build and nurture stronger relationships with |
| of disparate systems. Information is often duplicated, | | | | their suppliers and be more attentive towards their |
| making it difficult for financial controllers to create | | | | financial well-being. They can also secure longer term |
| ‘one version of the truth’. However, by | | | | arrangements that facilitate getting products and |
| developing an information system that integrates the | | | | services to market faster, in addition to being in a |
| finance function with the rest of the organisation and | | | | better position to negotiate more favourable trading |
| utilises information exchange with trading partners | | | | terms and pricing structures with suppliers. |
| within its supply chain, significant cost and time | | | | To be able to fully transform an organisation from |
| savings can be gained. Furthermore, much greater | | | | enterprise resource planning (ERP) and customer |
| visibility across the enterprise can be achieved. | | | | relationship management (CRM), to FSCM, several |
| For organisations to stay on top of changing market | | | | key changes are required. First on the list is the |
| conditions and ahead of the competition, they need a | | | | conversion of paper documents to electronic |
| combination of tools and techniques. Effective Supply | | | | documents. With the availability of improved and |
| Chain Management (SCM) helps organisations plan and | | | | more affordable optical character recognition and |
| manage activities across the enterprise including | | | | scanning technology, conversion is becoming more |
| sourcing, procurement, production, and logistics. It | | | | mainstream for many companies. |
| also allows them to better coordinate and collaborate | | | | Next, companies need to automate wherever |
| with channel partners such as suppliers, intermediaries, | | | | possible financial transactions. Automatic creation of |
| third-party service providers and customers. | | | | financial transactions from externally sourced files |
| While effective SCM of an organisation’s physical | | | | such as major suppliers, as well as automatic |
| operations is critical to its success, to remain truly | | | | reconciliation processes from files issued by banking |
| competitive it must also implement an ongoing | | | | institutions, are now commonplace. |
| process of identifying the financial benefits within the | | | | Then companies need to automate debt and liability |
| supply chain simultaneously. This is where Financial | | | | management; not just for the receipt and payment |
| Supply Chain Management (FSCM) plays an important | | | | processes but also the constant monitoring of |
| role as it allows CFOs and other guardians of an | | | | accounts enabling management by exception, isolating |
| organisation’s financial resources to identify | | | | the workload focus on delinquent accounts. This helps |
| metrics for monitoring and benchmarking. It also | | | | CFOs understand who is in dispute and the reasons |
| provides them with the ability to continually evaluate | | | | behind the dispute. As a result, the CRM aspect of |
| and take advantage of opportunities to the benefit | | | | the business is better supported by gaining a clearer |
| of not only the organisation but also shareholders and | | | | understanding of the needs of trading partners. If |
| customers alike. | | | | necessary, preventative measures can be put in |
| Put simply, FSCM is not a product; rather, it’s a | | | | place before problems arise, which further enhances |
| key to developing streamlined financial processes that | | | | service levels on both sides. |
| are designed to integrate with an organisation’s | | | | The final step of the transformation involves the |
| physical supply chain operations to produce a positive | | | | utilisation of Business Intelligence (BI) tools. These |
| impact on the business. It allows CFOs to compare | | | | allow a CFO to easily monitor KPIs within the |
| performance through key indicators versus projected | | | | organisation. BI tools also provide automatic triggers |
| outcomes, while at the same time helping them to | | | | or alerts for events such as cash shortfalls, or |
| keep a close eye on factors such as industry trends, | | | | incidents of cash surplus that are expected to |
| competitors or peers. | | | | provide the ability to redeploy funds to higher yield |
| In addition, FSCM allows CFOs to identify the amount | | | | alternatives. |
| of working capital within their organisations’ | | | | By improving efficiencies within the cash payment |
| assets that is tied up in the overall ‘cash to | | | | and cash collection processes, organisations can |
| cash’ cycle. This allows them to assess whether | | | | reduce the overall cost per invoice or cost per |
| the organisation is obtaining its optimum level of | | | | transaction, as well as remove inherent errors. This |
| reward. Conversely, FSCM also allows CFOs to | | | | will also help to free resources to manage exceptions |
| identify the financial burden of supporting their | | | | such as delinquent customers. Further to this, CFOs |
| current physical supply chain in terms of interest | | | | will benefit by being able to better predict future |
| charges, as well as the cost of labour and other | | | | cash inflows and outflows through integrated cash |
| overheads. | | | | flow planning. They will also further increase efficiency |
| The key focus of FSCM is to ensure that the | | | | within the finance function by reducing unnecessary |
| business, in meeting its strategic objectives, remains | | | | duplication of certain administrative tasks. |
| as profitable as possible, while at the same time | | | | An example of an company practising effective |
| optimising its cash flow. To achieve this, an | | | | FSCM is one that works closely with its corporate |
| organisation must first identify areas for | | | | credit card provider to pre-analyse all transactions |
| improvement in its business processes then prioritise | | | | placed on cards. The analysis occurs on the credit |
| and quantify the benefits or pitfalls of any changes. | | | | card provider’s systems initially, with the data |
| This practice of identifying process-driven profitability | | | | then cross-referenced and interfaced to enable |
| based on financial merit coupled with the ability to | | | | automatic posting of expenses to relevant general |
| rank changes in operations based on achievability | | | | ledger accounts. Due to the high number of |
| enables the business to carefully pick the ‘lowest | | | | corporate credit card holders, the process has |
| hanging fruit’. The upside of this approach means | | | | allowed the company to reduce the amount of |
| that the business is able to free up funds to support | | | | resources needed to process transactions. It has also |
| larger more profitable opportunities down the line. | | | | helped the company to stay on top of spending and |
| The human element also plays a part in optimising | | | | avoid unnecessary interest charges and fees. |
| FSCM. Approaching process improvements and | | | | In many aspects, effective FSCM involves a simplistic |
| change management in isolation of each other will | | | | approach to solving rather complex business problems |
| result in neglect of the true impact on the | | | | that can ultimately waste time and money. For |
| organisation. For example, offering sales personnel | | | | instance, by simply removing budgeting spreadsheets |
| and customers tiered bonus incentives or retro | | | | and incorporating data onto a single platform, a |
| discounts can create unpredictable sales trends. This | | | | company can gain the ability to share information |
| in turn can cause difficulties in managing cash flow | | | | across the enterprise. It can also simultaneously |
| projections as sales are held back or pushed forward | | | | reduce the need to duplicate data input, while at the |
| to meet an individual’s personal agenda. | | | | same time increasing accuracy. Further to this, |
| Furthermore, problems can also be created by funds | | | | financial controllers can integrate information relating |
| being tied up in inventory due to abnormal stockpiling. | | | | to real transactions occurring within the end-to-end |
| For an organisation to streamline its operational supply | | | | physical supply chain with predicted budgeted financial |
| chain processes with the goal of improving visibility on | | | | transactions. This provides them with an accurate |
| its financial supply chain, it first needs to identify the | | | | cash flow forecast, allowing for long-term cash |
| ‘real’ costs to the business. For instance, | | | | coverage and shortages to be identified and remedial |
| shorter lead times may be a great goal to have | | | | action taken sooner. |
| operationally. If, however, this results in invoicing | | | | So, how can organisations wishing to overcome the |
| inaccuracies or additional reconciliation work, then it | | | | issues associated with inefficiencies in the |
| would only result in longer processing times and the | | | | management of financial transaction processes switch |
| need to dedicate more resources to chasing credits. | | | | to effective FSCM? As a start, a future-proofed ERP |
| Therefore, in this example, shorter lead times would | | | | backbone needs to be in place to allow integration |
| not add overall financial benefit to the organisation as | | | | with other sub-systems that produce data on factors |
| it simply shifts costs from one department to | | | | such as raw materials ordering and customer cash |
| another. | | | | receipts. They then need to adopt the integration |
| In contrast, the benefits of shorter lead times could | | | | and standards (or de facto standards) of the |
| be realised if improvements were synchronised with | | | | particular industry it belongs to, such as fashion or |
| the financial department’s processes. However, | | | | distribution. Further to this, business intelligence tools |
| an issue such as this would first need to be identified | | | | incorporated into the system provide |
| upfront and measures set in place to monitor | | | | organisation-wide reporting and analysis via role-based |
| deviations. | | | | dashboards, helping deliver the right information to |
| FSCM can be particularly beneficial for companies that | | | | the right people at the right time. |
| have significant levels of outsourcing to low cost | | | | Once these foundations are in place, processes can |
| countries such as those operating in high volume | | | | be built into the system allowing for a high degree of |
| manufacturing and related distribution industries. | | | | automation internally that facilitates collaboration with |
| Technology and information systems play a key role | | | | customers, suppliers and other business partners. The |
| in streamlining processes and helping these types of | | | | natural effect of the Internet will of course add to |
| companies gain better visibility on financial data. This is | | | | the 'enablement' through Java and XML technologies |
| achieved by seamless communication with external | | | | ensuring an open architecture is created. This makes |
| suppliers and customers. | | | | it easier to collaborate seamlessly with external |
| One of the benefits of FSCM is that it can provide | | | | systems and to adopt new technologies in the future. |
| trading partners with access to an organisation’s | | | | Ultimately, FSCM can help CFOs steer their companies |
| system. By making these tools available - especially | | | | towards being more profitable and resistant to |
| to smaller, less technically sophisticated suppliers - | | | | market volatility. It ties together a multitude of |
| administrative and financial barriers are often | | | | financial transactions that take place in the supply |
| removed. | | | | chain every day and provides visibility on areas of |
| With system access authorisation granted to | | | | opportunity, as well as those that need improvement. |
| suppliers, companies face less confusion over | | | | |