While the logistical supply chain has undergone a major evolution over the past 30 years, the financial supply chain has not kept pace. Improving transaction processing between corporates and banks and better integrating the logistical and financial supply chains were the topics of Thursday morning's plenary session at Sibos 2004.
David M Taggart, VP and treasurer of The Coca Cola Company, described the current pain corporates experienced from using and integrating multiple complex systems. "I do not want to be in the information systems management business," he said. "I really don't feel like we're being efficient. We as corporates are spending too much time, energy and money addressing these problems.
"What your customer expects is for you to take the complex process of communication and make it simple, make it easy to use and process efficiently and make it easy to integrate with the systems I use every day," he said.
Taggart threw down the gauntlet to banks to address the problems in the same way they had addressed the transactions process in the past. "We only need to make the same sort of progress you have applied to the financial transactions side. It may be a 10-year march but it only takes a step to begin. I hope you continue to take those steps," he urged.
Ann Cairns, global head of working capital at ABN AMRO, focused on ways in which banks could provide solutions to their clients. Banks had to look at the problem from the perspective of the corporates and in so doing focus on finding ways to help them optimize working capital, she said.
"There is an incredible amount of cash trapped inside companies because financial and logistical supply chains are not operating efficiently," she said, citing research that shows there is around EUR580 billion of trapped cash in EU corporations and $590 billion in US corporations.
Banks would have to map "the DNA" of each customer in terms of suppliers, customer base, employees and risks. Once they understand how a company's financial supply chain intersects with its physical supply chain, they can start to build a working capital solution and "that solution would address the pain points", she said.
"This is the time that the banking industry can really make a difference in fuelling the economic growth of companies by focusing on the supply chain. It's up to us at banks to use our knowledge to work with SWIFT to address the needs of corporate clients and address our own needs so we can really deliver integrated financial and logistical solutions to our customers," she said.
So if banks know about the problem, how can they work towards solving it? Iain Stewart, group general manager and head of global transaction banking at HSBC, suggested there was wide acceptance among banks and corporates for the need to integrate supply chains. "We have to make this dream a reality and it would be better if there could be a big pot of gold at the end of the process."
For the banks, that pot of gold comes in the form of continued relevance and fees. "What corporates pay us for today is not what they'll pay us for in five years' time. If we take away some of the pain they'll pay us money. They're ecstatic if you take away the pain."
For corporates, the driver would be greater efficiency and less complexity. "If the pain is enough they will do it and if the gain is big enough they will do it," he said.
Stewart identified cost, technology and lack of standard data elements as obstacles to integration. "I think cost is going to be the major factor in how quickly the supply chain is integrated. Cost won't prevent it happening but it will dictate the pace," he said. Industry would benefit from having the process of standardization and integration broken down into manageable chunks.
He suggested the way forward would involve "collaboration allied to a sense of real urgency" and strongly urged banks to participate in SWIFT initiatives such as the Trust Services Advisory Group and Trade Service Utility.
Stewart also called for better communication within industry sectors for greater integration and for internal divisions between departments to be addressed. "While I have a lot of sympathy for corporates frustrated by progress from banks, many need to look inside themselves for the sort of cooperation and integration that they expect from banks."
According to Charles E. Phillips Jr., president and member of the board of Oracle Corporation, that may be already happening. He said that industry was coming to an "inflection point" and change was being driven by "standardization and simplification".
"On the integration side of it, we have some areas that the industry has agreed certain standards are now viable." This included the transition to IP networks and a standard language for information exchange in XML, standard interfaces via abstraction and standard financial semantics through SWIFT. "All of this has happened in the last few years. You can see now where they're making their bets. It was an area due for standardization; it wasn't ready five years ago but it is now."
Corporates have also recognized the need to simplify existing systems. "People are starting to understand simplification, consolidation and standardization," he said.
