Q&A: The Financial Supply Chain

The use of technology and open collaborative network processing can do the same for the financial supply chain as has been done for the physical supply chain . . .

Id 600 Syncada

We talked with Kurt Schneiber, CEO of Syncada, a global financial supply chain network, to discuss supply chain trends and where he sees growth in the business-to-business payments industry. Syncada was created for the express purpose of bringing value and finding efficiencies for those corporations who are transacting with each other, buying and selling, and to enhance the financial supply chain as a complement to the decades of work that has been done to enhance the physical supply chain.

Q: Tell our readers a little about what Syncada is intended for:

A: We think that the use of technology and open collaborative network processing can do the same for the financial supply chain as has been done for the physical supply chain, because the persistence of that push and pull between buyer and supplier exists in the financial realm as well as that of inventory. The buyer would like to extend that payment window as long as possible, and the supplier would like to get his or her cash in the door as soon as possible. That fact has not gone away. Even though the information available about the commercial transaction is much better and much more transparent than it was a decade ago, the financial side still has tensions there. So what we do at Syncada is to bring multiple banks into the picture, we bring financial flexibility to parties, buyer and seller, by bringing information about the commercial side to the transactions right up front in tools and systems that integrate with a company’s local ERP system and/or provide in the cloud a workflow tool necessary to do that collaboration. Basically Syncada helps suppliers to receive their money and information about their systems and their solutions more quickly and efficiently, and allows buyers to keep their terms but not disrupt their supplier base by not pushing them in a financial way. The banks are the party in the middle that is providing the liquidity to make this possible, paying on invoices that have been clarified, affirmed and approved in an open system.

Q: Where do you see business-to-business payments going in the next several years?

A: I can say that there are three trends that I perceive that will be consistently important:

1.)   Current state of the unsettled economy. There will continue to be relative difficulties throughout different segments of the economy, here in the US and globally. I don’t think that is going to go away any time soon. We will eventually get back to a normal, but for some time players in the economy are going to have to be adaptable and flexible. There will continue to be a great deal of unpredictability.

2.)   There is a renewed interest in the health of the supply chain. Large corporate buyers have an interest to preserve cash, drive down expenses, and stretch payment terms. At the same time, they recognize that those pressures facing their suppliers sometimes disrupts the ongoing normal business processes that they would need as part of their success of their own business ... as a result, suppliers and buyers are by necessity becoming more cooperative. In many ways, a general interest in the supply chain health is important.

3.)   I don’t think we are going to stop seeing advances in technology. Particularly in the near term and over the medium term. The move to the cloud, cloud based solutions or Software-as-a-Service solutions where firms don’t need to advance as much up front in terms of installing and maintaining a proprietary software product – this will continue. In this way, smaller businesses can still access the latest and greatest in order to benefit their business.

Q: Why do smaller companies need to expand into global markets today?

A: There are two sides to this global expansion. One is that most of the growth in the next five years will take place outside of the North American environment. Not only is the rest of the world a source of good suppliers, like Asia and Latin America have been in the last decade or so, but there is the inherent economy in those countries in the form of consumers. If a company wants to grow beyond the normal growth rate now, it will need to seek opportunities outside of the US. In order to be truly efficient, players will need to find and aggressively pursue suppliers who in the past might have been around the corner, or who may have at one time been in one country, but now may be moving from one place to another in order to capture the best cost dynamics available. Even the smallest company or firm will need to be nimble to take opportunities. I think it is key. They are going to have to depend on technology since it is difficult for a small firm to extend itself in a significant way without the advantages of technology. Partnering and collaboration is the real key for small firms to leverage connections through associations and partnerships and networks and technology networks so that they are bigger than they would be on their own. The pace of change is rapid and small firms can be swallowed by that change if they are not connected to the market place in a big way.

Q: E-invoicing has risen by 20-percent: what does that mean to the Industrial Distributor? How must they adapt to this changing system? How and why are companies like Mexico and Finland encouraging this?

A: A couple reasons why regions are encouraging the invoicing.

1.)   There is an inherent aspiration by governments that their firms be extremely competitive and successful. This success increases the opportunity for job growth and economic vitality. Reasonably wise bureaucrats are encouraging technology to ensure that their players can compete effectively in the global market.

2.)   Governments also, in their own self-interest, recognize that better information leads to a likelihood of more consistent compliance. E-invoicing is encouraged as an additional means to increase transparency of commercial flows thereby increasing visibility on taxable transactions.

What it means to a distributor: emphasis now on the automation of the financial supply chain is following behind several decades of intense focus on the physical supply chain. Financial processes that support that supply chain, including invoices and payment, really haven’t been completely optimized. The majority of invoice processing activities are still on paper. Even in a place like Europe which has been traditionally more forward looking with technology, extensive paper still exists. The EU has been one of the biggest contenders to move this forward to limit and minimize the long term impact of multiple governmental geographic differences, encouraging standardization across borders.

When a supplier is issuing invoices – the discussion for efficiency often focuses only on this side. Being able to get your invoice out the door faster and with more accuracy increases your likelihood of getting paid on time.

What isn’t discussed as often is buyers spending less time on the receipt of invoices. Even if you are receiving your invoices as a buyer electronically, you still have to make a change internally in order to see a difference. Taking those electronic documents and printing them in order to move about the firm for approval, taking 30-40 days for approval and another 30 to pay, still takes time. The supplier ends up being stretched because of the inefficiencies of the buyer’s shop. Buyers can increase their efficiency to process invoices by using technology that would automate the approval process, embedding approval rules right into the processes themselves. If the transaction fits the pre-decided criteria: it is approved. Automatically, and with no human interaction. This can reduce approval time down to 3, 4, or 5 days and is a dramatic time and cost savings for the accounts payable process.

Electronic invoicing, both issuance and receipt, drives up clarity and transparency and drives down costs. It increases likelihood for buyers and suppliers to be successfully transacting and thereby removing resistances in the financial processes and increasing the likelihood that the next transaction occurs quickly, efficiently, and smoothly.

Q: What technologies that simplify the supply chain process are there for distributors? How do they help?

A: One is the possibility to automate the invoice issuance process. Everyone who is a supplier is a buyer – the process to manage the incoming invoices is key.

Q: So what technology is available to help handle this?

A: In previous days, one might have said that was a very expensive proposition for me to go out and buy a full-fledged ERP system. That now is shifting to solutions that are deployed through the web or in the cloud, where the data can reside much more cost effectively outside the core platforms of these firms. Adequate reporting and sharing accounting inventory can be managed without the acquisition of separate technology to handle these processes. Cloud based computing increases the possibility for multiple parties to transact together in processes that would normally be done on paper, making their connections more efficient. Buyer, supplier, bank – the automation process enhances for each of them opportunities for success. The supplier is paid faster, the buyer makes fewer errors, and the bank can insert itself to make payments and lend money against very trustworthy and documented transaction flows.

The nature of a network is also very powerful. A community of buyers and suppliers connected in network allows those parties to interact with each other and build efficiencies among each other and increase the likelihood of success for all parties.

Q: Is this automation allowing companies to work in real time?

A: Yes – and then some. In the setup of this arrangement, if a buyer takes the time not only to scrub the supplier list but also to evaluate the business rules by which things get approved, then approvals can happen without intervention. If there are contracts, they can automate based on certain rules and then approve without human need. It makes internal auditing easier because you run reports rather than gather hundreds of paper inovices. Automation of these processes is very powerful. Not easy at first, but with the help of network technology very helpful.

Q: Most importantly, what trends do you see in technology and finance in the next few years that will impact the way distributors do business, earn sales, and reach more customers?

A: In summary, a distributor will continue to face pressure to grow its customer base and will absolutely have to connect with the world in a very technology-driven way, using technology and networks in the supply side and sales side. The use of technology to extend the distributor’s reach into new markets has got to continue. You can’t take away the value of a strong sales executive in closing deals, but to make that executive effective you have to give them technology. It will drive the next several years of activity for distributors.

The need to ensure that the supply chain is transparent, strong, and vibrant also demands the use of network technologies to make sure that both customers and suppliers are well treated and their information is clear and transparent and readily available. Distributors who are effective at reaching customers beyond their own geographic boundaries, as well as sourcing product solutions form outside, with have a higher likelihood of success.

To find out more about Syncada, visit www.syncada.com.